For a long while, it felt like the resumption of the stock market decline would never come. But now, it appears that US equities – the final holdout of the ‘09-10 “reflation rally” – are once again under some serious pressure.
When we last chatted, we wondered if the S&P’s kiss of the 1122 mark – about a 50% retracement of the previous decline down to 1040 – was it. Based on today’s market action, it’s looking like that may be the case:
Thus far our Seeking Alpha contrarian indicator looking like it’s “1 for 1″ in calling short term excessive bullish sentiment. A bit of redemption for us bears!
And as for an update to our short position – we previously had one winner, and one disaster – and this one fortunately is looking like a winner, getting back all of the gains and even a little more of our previous loser. So we’re 2 for 3 as of now…though not as well of, I should add, as we’d be had we just held that initial position the whole time.
Source: My Futures Account
Moral of the story: In a bear market, just get short and stay short…as long as the trend is in your favor.
So, we’ll try not to get “too cute” with this position. Sure, the market could bounce tomorrow and retrace some of these losses. Then again, it may not. Bear markets, as we’ve discussed, often dish out the most pain when markets are already oversold.
Instead, the strategy will be to watch this position – and, look for potential rallies to add to the winning position. Ideally, we’d love to add a few as the market tanks down to the levels we’re anticipating (taking out the March ‘09 lows).
One more important development today – volume picked up a bit (something we were looking for to reinforce our bearish hypothesis), and breadth was also very negative. From CNN Money:
Market breadth was negative and volume was moderate. On the New York Stock Exchange, losers beat winners 11 to one on volume of 1.6 billion shares. On the Nasdaq, decliners topped advancers eight to one on volume of 2.58 billion shares.
Fasten your seatbelts! If we break through that 1040 support level decisively, this could be a doozy of a decline.
Our Partners
We publish a free daily newsletter, The Contrary Investing Report, which highlights trading and investing stories that are key to your financial success and survival. Please subscribe here.
Post Footer automatically generated by Add Post Footer Plugin for wordpress.
{ 5 comments… read them below or add one }
Hopefully you picked up that emini short today. I was thinking about trading the S&P-500 eminis and opening an account. 1-2 contracts at a time nothing too wild. do you have a stop loss established on your contracts or just let it get marked to market appropriately ?
The SDS works well if your timeframe is 1-3 days, however; with the extreme volatility the resetting can be brutal. I shorted the FAZ which is the 3x bear ETF for financials last year and that had to have a reverse split because of the compounding effect.
I covered the airlines yesterday and got lucky enough to miss the up move today.
I also shorted Caterpillar a few days ago and covered, but I think I was a bit quick to do that. A lot of the cyclicals will suffer during a growth slowdown, but medicine always tastes bad anyways.
Ah, I overlooked the position established on june 21.
What’s your overall target ? I’ve tossed around 950-1,000 in the S&P-500, but honestly I could believe it goes lower if the sh!t really hits the fan.
Yeah my target is actually even lower, I expect the March ‘09 lows to be toast. So ideally I’d like to hold these if/when the S&P dives all the way below 600.
Since the whole reflation rally was just a bear market bounce, the next leg down should comfortably take out the previous lows. That’s basically what happened in 1929-1932, I’m expecting something similar now.
China PMI numbers just came in soft. Look out below.
Yessir!
http://online.wsj.com/article/BT-CO-20100701-700150.html
{ 13 trackbacks }