This week was a strange week for anyone that just started opening
their 401K statements again. For those that are new or been trading for a
few years, this week certainly holds up to what must seem as a “once in
a blue moon” event.
Imagine what this week must be like when seen through the eyes of a
16-year-old day trader that’s accustomed to racking up over 30%
annualized returns. Obviously something must be wrong. If not how else
can the markets go down 2 days in a row? I mean – “OMG!”
Of course I’m being sarcastic yet – not by much.
Anyone that’s been involved watching or trading markets knows the proverbial trading queue involving magazine covers: When the covers say it’s “Time to Buy” – it’s -”Time To Sell” and vise versa.
Yet, in this day of print media going out of business faster than
their ink dries. The “talking head” shows were a buzz with the
equivalent of what a tabloid finds newsworthy. A 16-year-old actress
that’s also a self-professed day trader sporting yearly returns that
would make a vampire squid blush.
I had seen the story of this young girl and her exploits as a
day-trader and wanted to know a little more. Her name is Rachel Fox.
This is nothing about her personally. She seems like a great kid with
her head screwed on straight. It was also uplifting to see a young adult
actually involved in managing her own money. I wish her kudos.
What I do wish to shine light on that I believe will be instructive
to a great many in the coming weeks, months, and quite possibly years is
this: “Markets do go down – and sometimes – they don’t come back up.”
At least in the sense of where you can exit at a slight loss, or break
even as has been the way of the last few years.
Personally my business bent is that of a Short Seller. I regard this
side of business much more invigorating in both the analyzing of data,
as well as the trading. One of the greatest pleasures I take from seeing
the world from this viewpoint is this: When the world is coming apart
and panic is abound; Shorts (aka Bears) by nature find exhilaration in
the havoc. They begin implementing strategies and more with clear
thinking and vision while everyone around them is just losing their
Personally I believe the reason behind this is because it’s not easy
being a bear when everyone from the Federal Reserve to 16-year-old day
traders have you in their sights because “JBTFD” (just buy the f’n dip)
has been rewarded again, and again, and again, and again, and, well you
get the point.
An inflection point for the markets just might be closer than many
dare think. This could actually be scarier (many think it never could)
than that of 2008 and for the very reasons people believe it can’t. Of
course I’m speaking of the Federal Reserve.
Nearly overnight all the wonderful reasons why markets were rising
based on earnings and more were drowned out by the gasping of
commentators everywhere that the Fed might take the punch bowl away. (oh
Imagine someone that’s been trading their own 401K or other
investments over the last 5 years. For the most part everyone “buys”
stocks. (Very few are what one calls “Short sellers.”) They’ve learned
technical analysis, stop-loss orders, learned how to read all sorts of
indicators or technical studies, and far more.
But, (and it’s a very big but) the one thing they have not experienced
is a fast-moving panic induced down move. Just for context. The last
time a sustained down trend that lasted more than a day or so was when
our teenaged wonder trader was (wait for it) eleven!
With the advent of HFT (high frequency trading) along with their
headline reading algorithmic quote stuffing schemes all one needed to do
was just wait for the market to spin on a dime and rocket not only back
up – but higher. Over the last 5 years that’s all one’s known. What
happens when it no longer does?
JBTFD’s can turn into trying to catch a falling knife faster than one
can say “WTF!” Or should I have said “OMG?” If I’m correct it will be
the former that’s used far more often than the latter.
Just what happens to one’s psyche when all of a sudden fast markets
ignore your stops? They gap over or under them never giving you an
opportunity to close that position that now has your net liquidation
total showing negative numbers? The word “Hello” wont be coming be
coming from some trading icon. (pun intended) It’ll be from the margin
managers desk. Like I said: “Hello.”
Just how many new orders will they put in to buy when every-time they
do the market drops another 2 – 3 – 5% or more then does it again –
What happens to the self-proclaimed “Pro” that’s been trading for 3 to 4
years and has yet to experience a week like the many experienced in
2008? I know this; exhilaration won’t be the term used to describe what
Of course Bears or Shorts have been wrong over the last 5 years. Many
have deep wounds or scars to prove it. However, unlike most they take
their cues when everyone else is either blind to the clues, or just
refuses to see them. And I quite possibly saw one of this years best.
As I said earlier I wanted to find out a little more information on
our teenaged wonder trader when I saw her in an interview with one of my
personal favorite talking heads: Jeff Macke. I hadn’t seen him for
quite sometime. My favorite line he used to expound was “If the markets are open – it’s a good day to short the airlines.”
As I watched his interview on Yahoo Finance™ all I could think was :
If the news of the day is a teenage wonder trader making 30% returns –
It’s a good day to short everything!
© 2013 Mark St.Cyr www.MarkStCyr.com