WELCOME TO A DEVIOUS MARKET WITH QUESTIONABLE INTENTIONS
Nothing changed for me today. In fact, the manner with which the market is continuing to pull off one "not supposed to happen" trick after another has me firmly entrenched on the bearish side of trade. Albeit, I am not short any broad based equity indices or sectors. Instead I have chosen to remain on the periphery through a short position in MOO (agriculture ETF) and a long position in ZSL (short silver).
I think it's important as an investor or trader to be in touch with your own level of comfort for any single trade. If the level of comfort does not exist to be able to ride out the inevitable volatility, then odds are that the trade will end up being a losing one. My level of comfort with respect to shorting the S&P 500 or Nasdaq just isn't there at this juncture. I wouldn't have any holding power if I was to do so.
I am, however, comfortable shorting MOO and being short silver through ZSL. These positions are more or less linked to the general market and should move down in line with the S&P 500. Since the S&P 500 has now become a derivative of the Euro, then these positions are essentially short Euro positions when all is said and done.
The ferocity with which the major market indices have broken down is highly abnormal. It typically marks the beginning of a new downtrend instead of a short-term spike down. What has me apprehensive about embracing this scenario wholeheartedly is the sentiment picture. While investors certainly aren't as bearish as they were last month this time, there is still quite a bit of skepticism and doubt with respect to the market.
What should be noted is the tendency of markets to move down in an accelerated fashion when an abundance of bearishness meets a market that is too weak to bounce. If I had to pick between a scenario that has us moving up to recapture last weeks highs and an accelerated move down that leaves those hoping for a bounce in the dust, I would choose the latter scenario.
The market did not close below highly significant support levels on both the S&P 500 and Nasdaq 100 because it wants to give those fund managers who missed out on the October rally a chance to get positioned for a November to remember. The financials didn't fail as dramatically as they did today because they want to give John Paulson the chance to load up before making him whole again by the New Year. There is something more devious at work here. A smell of a bear that is about to reemerge.
I would love to be wrong and have the bull market resume (after I have covered my shorts, of course) with all its power and glory. I find it much easier to make big gains in bull markets than attempting to pick off mind numbing drops in the modern day bear market.
I do, however, have to call it how I see it. As of today, given all of the deviations from the expected path towards a continued bull market, I have to say that the bears are now back in control. Be careful.
