Thursday, November 4, 2010

Some words for both the longs and shorts

The bulls couldn't have asked for a better day with the new yearly highs being the icing on the cake. Not much to say about today as it was pretty much one way traffic throughout the day. The board was all green but the financials deserve a special mention here as they broke through their multi-month range, and closed above the crucial 15 level.

As the regular readers of this blog know, I just had one long position heading into today - SOLF. As I have stated before, the strategy behind this was to wait to see how the market reacts to QE2 and protect the gains from the last few months. Did I regret not being so heavily into cash at the open today? Not a bit! Sure, I lost out on what could have been pretty decent profits as the market gapped up but things could have very easily gone the other way. I sold SOLF at 10.82 for gains north of 4%, respecting the MA(20) at 10.85. It turned out to be a decent move as it soon went south and underperformed the entire day. I got into PAL, a recent Chart of the Day, at 4.95 and added at 4.98 and 5. I liked how it closed and am carrying it into tomorrow. Also took a starting position in GSIT at 7.09.
Just a word of caution here in case you are thinking of going short. I am not saying it won't work and you very well might succeed but you should have a proper rationale for calling the top, which is always a risky thing to do. Some reasons which are not the right reasons for going short are: (a) The market seems to be too high (b) We have come too far too fast (c) The job scene still sucks and the economy is going down. You might be very well right on the last one but remember the market can stay irrational longer than you can stay solvent. I myself believe in just enjoying this ride up till it lasts.

And if you are long and have been long for a while, please be careful of the irrational exuberance and the congratulatory headlines that will follow the new YTD highs. The market can and will turn when we least expect it and the bullish sentiment is at its peak. That doesn't mean that we start shorting here but just respect your stops.
Take care and good luck!

1 comment:

Bill said...

Good post, your a good Keynesian student. One question. Do you have a long term analysis on US markets as a whole, say 1-2 years or even 3-5 or do you generally just focus on short term charts and stick to riding the momentum as much as possible? Thanks.

P.S. again short NFLX people before its too late. i own a jun 11 $75 put that i expect to at least double if not triple