Getting Too Late To Short

Everybody always tries to figure out the next move in the market, me included.  But, I realize I don’t have to determine if the next bull market is around the corner or not.  Going back to the 2000-2003 bear market, there were plenty of good rallies that we made money on.  But, they weren’t the start of a new bull market.  So, I like to watch the market like a pendulum.  That pendulum is the emotions and the people agreeing with each other. 

The average Joe now thinks we’re in a recession and bear market.  So, you’re seeing the results of that.  The conversion from stocks to bonds and cash.  That has caused many of the oscillators I watch to get oversold.  There are too many I watch to list them all.  They aren’t all oversold, but enough of them are to where we are perhaps in the 8th or 9th inning of THIS correction.  Just when you feel like tossing in the towel, that’s when we’re close.  I say THIS correction, because just like the spring rally, we could get a 10% or even a 20% rally in the indices and still be in a bear market.  But, nevertheless, we want to ride that rally when it comes. 

But, for now, if you own shorts like I do, don’t sell them just yet.  But, if you’re holding too many stocks and you can’t sleep at night, you may want to average out because if you sell everything today, you and I both know where the market’s going.  UP!  That’s how Mr. Market works.

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4 Responses to “Getting Too Late To Short”


  1. 1 James July 1, 2008 at 10:19 am

    Karl, wanted to get your thoughts on a few points I have been hearing.
    1) A lot of people watching for the VIX to spike. The VIX spike would be nice to have, but not necessary for a near term bottom. Alternative is to look at price (ex. spike in SDS).
    2) DUG play is not working. Market has thrown everything, including the kitchen sink at oil stocks, and they are not breaking down. If they can’t break them down in a bearish market, shorts should watch out if the market ever becomes less bearish.

  2. 2 keggerss July 1, 2008 at 10:45 am

    VIX doesn’t have to spike. You are correct, but it gives us better odds for a rally.

    I no longer own DUG. Sold yesterday.

  3. 3 Paul July 1, 2008 at 11:32 am

    Karl:

    Is it too early to start dipping the toe in the water on the long side? I’m thinking of putting out some line on a couple of ETF positions but don’t want to catch a falling knife.

  4. 4 keggerss July 1, 2008 at 12:16 pm

    Paul, I don’t think it’s too early. Whether it’s just for a trade or you think the meltdown is around the corner, if you’re exposure is very little, don’t be afraid to dip your toe. In addition to ETFs which is probably the way I’d go if you’re looking to get some exposure, there are great companies you can buy right now which is another way to dip your toe.


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