Still Too Much Bullishness For a Real Bottom [Updated x3]

On Friday, I closed some of my positions as I thought we were hitting bottom due to high level of VIX and a short term capitulation.

  • The market managed to recoup the losses and the VIX collapsed again, while it was a Friday, and speculators seemed too happy to load up on risk during the week-end
  • There are too many people calling a buying opportunity still
  • The US has been downgraded, and I do not see enough reaction besides emotionally charged anger against S&P.
  • Gold and silver are soaring, showing that the "risk on" trade is moving from equities and other commodities into the precious metals.
  • ECB's Chairman, Trichet has decided to monetize Spanish and Italian debt, although this is illegal and highly inflationary, the Euro is rallying, showing yet again, that the über-bullishness on the Euro is not deflating, while the economies of the Eurozone are collapsing.
  • [Update] Goldman Sachs just downgraded their forecast for the S&P... they expect the S&P to end the year at... 1450 points! That's 20% gain in about 5 months...  Call that panic and bearish?
  • [Update2] Barry Knapp of Barclays Capital tells on Bloomberg TV that he doesn't change his forecast for the S&P to end the year at 1450. He calls this decline a tremendous buying opportunity, and says that stocks are extremely cheap.
  • Aug. 8 (Bloomberg) -- The combination of the past two weeks’ $1.94 trillion equity wipeout, record cash levels and rising dividends means the Standard & Poor’s 500 Index is offering comparable values to Treasuries.

    “Many corporations are in better shape than even the United States,” E. William Stone, who helps oversee $109 billion as chief investment strategist at PNC Wealth Management in Philadelphia, said in a telephone interview Aug. 6. “These companies are in a position to weather pretty much any sort of financial storm. Hopefully we won’t see that again. It certainly would argue for that tilt towards larger, stable companies with sustainable dividends.”
So I'm lost a bit here. I think the most likely scenario is a few more days of decline — I'm happy I've kept my short positions open — before the relief rally and the bounce that I will short.


Anonymous said...

So, pej, what're you shorting? BAC seems a good target. Thought about dabbling inverse DOW and S&P ETFs, but they make me nervous.

pej said...

My biggest short is IWM (via Puts). I have 80 puts on IWM expiry Jan 2012.

You can see it here: http://finance.yahoo.com/q?s=IWM120121P00080000 and it's trading in the $13.xx at the moment.

I'm also short EUR, AUD, and a few other smaller names including BIDU.

I'm looking into shorting some more silver as well.

It's unfortunately too late to buy puts, with Implied Vol. so high. If I had to open new naked short positions today, I would short again IWM, and maybe looking at an entry point for shorting AAPL.

My biggest regret is not having been on front of my screen when LNKD announced their quarterly to short them. They are down 30% in just 3 trading days.


Tiho said...

Omg.... You are talking about shorting close to the bottom!

pej said...

Depends on your time horizon. A 6% decline was quite a big gain on a one-day trade :-)
But then again, you're investing for the long run!

pej said...

Dude, just to annoy you a bit, I'm gonna tell you that i've shorted the ES about an hour ago @1151 :-p

Tiho said...

Fair enough, you are a day trader I guess! Good luck with that short...

pej said...

Was too greedy, I should have closed it at the end of the session with a 4% gain.

I kept it open and got stopped with only a 1.5% percent again :-(

The position was open for 6 hours.