Tuesday, August 28, 2007

Bulls Still At The Beach?

I can not find even one reason to be significantly long right now. The only people that I believe are making money in this market are those that are adept at shorting, and those that are successful at trading volatility.

I mean really, why be long, right now? Every where one looks, there is uncertainty. And I'm not talking about the kind of uncertainty that allows one to look beyond it. There are just some events which have to take place before the uncertainty can be discounted. The market is dying to see some pricing of the CDOs. Everyone wants to know how badly Goldman and Bear are going to be hit. More GDP readings would not hurt, either.

If dozens of weather people said they saw a large category 5 hurricane predicted to head towards your town, yet it was still months away, what would you do? Would you put a new roof on your house now? Would you schedule a vacation during the projected arrival? Would you spend your life savings on plywood and screws? Probably not. You would likely just keep your eyes on the news, and develop plans for multiple scenarios.

I think that is what it makes sense to do here. Undoubtably, going to 100% cash is probably hard for traders and investors. No matter how bad things get, it is very difficult to not keep dipping one's toes in the pool, testing the waters. And if you are not under-capitalized, and you are able to take quick losses, it is probaby okay to keep testing these waters.

For the contrarians, I have picked up the 2nd Edition of Irrational Exuberance. The fact that I'm reading this most definitive bear story might mean we are near a bottom. Nonetheless, the 2nd edition is updated to cover the housing boom (bubble), and I'm finding that section to be rather frightening, but thought provoking.

As for the Nasdaq, the bulls were unable to push the index to the 50 day average. That is very weak. For now, the downtrend is still intact. While volume has been slight, it can not be ignored. While normally, light volume would be the statistical equivalent of a small sample size, in this instance, I feel it means that more traders are choosing to sit on their hands, rather than trade. Looking at it in those terms, the large sample is choosing not to participate. This is probably what everyone should be doing. It is not as if the market is just going to come roaring back, with all the uncertainty mentioned above.

If one is able to trade regularly, this correction has been extremely tradeable with a swing trading style, by using the QLD, QID, and corresponding Dow and Spy inverse ETFs. It simply takes patience, discipline to enter positions near trendlines, and a willingness to take small profits, and smaller losses.

Today, my stop hit on my QLD position, taking me out above $91.00, for a very small (<$50.00) loss. I still have a very small position in ANAD, which, incidentally did see the volatility I was expecting (except in the wrong direction). Of course, I'm still long MVIS.


Broker A said...

I'm reading "The Forgotten Man."

More 'Great Depression fun.'

Anonymous said...

Just finished reading Jesse Livermore: World's Greatest Stock Trader.

Now there was a man who knew how to short stocks!

Anonymous said...

qld up over 4% today, wowzers this market is still in bull mode. I am down this month though.

Sierra Water said...

This market gives me a headache. Should be fly fishing up in the Sierras.

Broker A said...

You're the laziest blogger on the internet.

Trading Goddess said...


I trust all is well?

Do I have to send the Blog Police out to look for you?

Woodshedder said...

lol@ TG and the Fly.

Everything is fine. Just took a break over labor day weekend. I'll have a new post up soon.

Thanks for your concern though!