Trading Blog: Took Profits on Short Positions
| I mean no disrespect to Mr Hulbert, especially since he's not the only one talking about the 1987 crash today. Besides, he may be right. We may yet have a 25% single day decline from here. But as I said above, I'm sure that many a trader has let 15% gains evaporate on their short positions because they were looking for that once-in-a-lifetime event. Personally I'll take the lesser gains. A bird in the hand, and so forth. Here are some other reasons I took profits. One is the VIX, a volatility (or "fear") index that quite often signals temporary bottoms in bear markets. The symbol for this is $VIX, and you can pull up a chart for it for free at www.StockCharts.com. The VIX measures the premium that investors are paying for market put options. Put options are stock options that rise quickly in value when markets tank. When investors fear further market declines, they pay higher premiums for these options. As you can see on the chart below, market reversals tend to happen when the VIX spikes into the 30s, which indicates high put premiums. This morning, the VIX spiked to almost 34, which I took as a sign that I should lock in some profits. This also coincided with the market retreating from the lows of the day. I can't be sure that a bottom is in (one that will last for a few weeks - I still have my doubts), but sometimes you just need to pull a Kenny Rogers and "know when to walk away." One final reason I took profits is that there is a lot of potentially important news that could come out today. Will we get a Fed rate cut? If so, how will that affect the market? What if AIG is somehow rescued? What if JP Morgan Chase buys Washington Mutual? Even rumors can cause wild market swings, and we have an awful lot of potentially big news coming out soon. The market could drop again by the end of the day, or rally sharply. Who knows. But for me, cash is the place to be. I'm not yet sure what my next trade will be, but then again, I haven't even had breakfast yet. First things first. Have a good day everyone! P.S. I noticed that the spot price of silver is back at $10.50 or so. This amuses me quite a bit since I can't seem to find anything worth buying at this price. I encourage everyone to take a minute to visit www.APMEX.com or www.GoldSilver.com and browse their selection of silver bullion products. For instance, APMEX only has jugs of industrial silver shot (beads) for sale under bars and rounds. They also have silver eagles for sale at $4.29 over spot, a 40% premium! And that's about it. Demand has clearly been rising and dealers are out, yet the spot price is in decline. Is anyone else confused by this? **************************************** To sign up for our FREE EMAIL NEWSLETTER, visit our main page at http://www.HomemadeInvestors.com. Disclaimer: Homemade Investors is published by Homemade Investors LLC. The information contained in this article does not constitute personal investment advice and is not designed to meet the personal financial needs of any individual. Investors should seek advice from a qualified investment advisor before entering into any transaction. The information contained in this article is deemed reliable but is not guaranteed. The information and opinions contained in this article are subject to change without notice, and there is no obligation to update such. To republish this article, visit http://www.HomemadeInvestors.com/reprint for guidelines. © 2008 Homemade Investors LLC. All rights reserved. |
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| by Daniel R., Homemade Investors Tuesday, September 16th, 2008 The Crash of '87 ... blah blah blah. I took nice profits this morning on my short positions, which I held via the Proshares ultrashort ETFs, SDS and DXD. (These go up twice as fast as the S&P 500 and the Dow Jones Industrial Average go down. I entered these positions in late August.) About 20 minutes ago, I wrote some related comments on an online discussion board, which I thought I'd share with you: Subject: My patented Market Hulbert Contrarian Index suggests a temporary bottom. I'm always amused when I hear Mark Hulbert [Marketwatch.com] talk about "the Crash of '87" because he almost always brings it up at an important bottom. This has become a fairly reliable indicator to me, and so today's VIX spike and market reversal (we'll see if it holds) is underlined by Mark Hulbert's headline, which states that "Monday's massacre was nothing like October 1987. But worst may not be past." I wonder how many countless short position holders have been tricked out of taking 15% gains because they were looking for that elusive 25% crash? We may get one yet, but personally I'm happy with the gains I have. Today is a good day to be in cash. |