“luchabee” writes:
For those going long like stockstradr, how do you time the market going back up?
lunchabee, I think you are mixing me (diehard bear mostly short this market) up with many on this forum who are buy-and-hold bulls in long positions. By the way, I respect the buy-and-hold investors, particularly those good at value-investing.
However, I’ll answer your question about how I time the markets, and when it is purely guessing.
For me, the key is to identify the economic trend or event that is certain to happen, and anticipate how it will hit the markets before most others see it coming. Then you take market positions that reduce risk associated with having to GUESS when that market event will happen.
I read all the forward-thinking analysis (of economic trends) i can get my hands on, and use it to brainstorm “what will likely happen when…” scenarios.
Often precipitating events make scenarios so certain that one need only guess on WHEN the shit will hit the fan, not IF it will. A housing crash, for example, was inevitable given the toxic loans, speculation, outright fraud that created the bubble.
I saw that a combination of events also meant a major stock market correction (30%) will hit along with a recession.
I guessed that correction would start about Dec06 to Jan07. I was wrong, but since I was guessing on timing I only put about half my portfolio short; however, the market then climbed up over 10% against my short positions. *ouch*
In Jul07, I guessed again the markets had finally topped out. I put the rest of my chips on the table. This time I was right and having increased my position just before the pullback meant I covered my losses from shorting half my portfolio six months early.
After the market fell 10%, I guessed just on instinct Aug 16th the bargain hunters would come in and markets would see a 5% fool’s rally. I closed all my short positions, except my puts (less than 5% of my portfolio)
I guessed right and markets did exactly that and by (Aug 24) I went short again with 30% of my portfolio. By Aug 27 I gained confidence in that guess (bear trend has resumed), so I put the other 2/3 back into short positions. The market fell -280 points the next day (yesterday), giving me nearly a full 5% gain just for that day. (My portfolio was in positions that gave 2X inverse market performance)
Last night I figured the market would continue falling today, so I held all my short positions. I was wrong. The market is up 1.3% as I write this. Win some, lose some.
However, I continue to believe today this is just normal volatility on top of a a nasty bear trend line down, which will take us 5% to 10% lower from here before we see another fool’s rally. Today’s rally is looking quite weak anyway. There is so much fear in the market that INCREDIBLY good news will be required to support a significant fool’s rally, and that kind of news is unlikely. More bad news is far more likely.
I saw that last night the Asian markets took a bit of a tumble. Remember, another pet theory I’m holding is that Asian (particularly Shanghai) exchanges are way way overbought, and currently offer a better shorting opportunity than western markets.
