I've received a number of compelling reasons to trim back my shorts, not the least of which is the LDI, which has historically been infallible. But let me share a little story about why I'm not gobbling up stocks.
About a week or so ago, I was tempted to buy a number of positions that seemed very "cheap". I came THIS close (imagine me holding up my fingers very closely together) to doing so, but instead, I simply put the positions into a spreadsheet to see what they would have done if I did go long.
Well, a week later, they are all down, and collectively the loss would have been something like $20,000.
Moments ago, I faced the same temptation, because the same stocks are even cheaper (obviously). I again came THIS close, but again shoved the symbols into a spreadsheet instead, where they are harmless hypotheticals.
I maintain that, as of September 14, the tide turned, and we are in a true, honest-to-God bear market again. I will thus endeavor to keep cash as my only "long", scampering back into retreat mode when I believe the likelihood of a bounce is strong. As of now, I have gone from a 95% commitment (late Wednesday) to 40%, all of them shorts, all of them small, and all of them carefully-selected.
If we keep falling, fine, I'll keep accruing profits (albeit slowly). If we rally, fine, I'll take on some water, but I'll simply be waiting for the juicy moment around 1400 when short opportunities will engulf us all in their gorgeousness. Just to be clear, today is a little disappointing, since I went from a hefty profit to a small loss in the span of half an hour, but Ithink a bounce at this point is long overdue, and a rally anywhere a little above 1400 will be a gift from the trading gods above.
I've said before that strong downtrends can ride the daily lower bollinger band down quite a distance, and we've been watching that on SPX for the last few days. The current run down has covered some 40 points since SPX hit the lower BB again after the last retracement and looking back to July 2011, there have been three previous instances where SPX has ridden the lower band downwards. Counting from the hit of the lower bollinger band, rather from the start of the decline, until the next significant move away from the band, the previous instances were as follows:
- July/Aug 2011 – 195 points (Bear Market)
- Nov 2011 – 60 points (Bull Market)
- May 2012 – 70 points (Bull Market)