Saturday, September 06, 2008

Smack Dab September


The easiest bugs to squash are those already bleeding.

September is a month to relish (above!), if not respect. The potential for an exquisitely tradable bottom, which lasts almost routinely into the year-end and even longer, is pretty much dependable it is so common. And on the few occasions a sickened market cannot bottom in September, a stock market crash in October makes for a nice possible alternative.

So what's not to love about this environment?

Clearly, the market is not appreciating lower commodity prices. Recall the good old days of '08 when we paid $5/gal. for gasoline and our long-side portfolios were rising? What's an Earth-plunger to do?

Well, don't do what I do (especially since I rarely give-out time-specific trades anymore). But Jesus Christ, if you can't clobber wounded seal pups in a line, then at least find a rock to hide behind until the flock stops bleeding. You'd rather be a hammer than the nail...I should hope.

Friday's action was nothing like an impressive reversal, indicative of bottoming action. It was an oversold reprieve, and it is only a matter of how much of a bounce we will see before the blood lets again. Even if a genuine bottom is only a week or two off, the screams are darkest before the dawn.

On that front, I can say this. If the market is truly sick, the bounce we saw on the second half of Friday will not last any more into Monday than perhaps the first couple moments. A sick market bent on going lower bounces for some or all of a day and dies almost immediately (or even gaps lower) thereafter.

So if we get an up-open on Monday, I'll be shorting with both hands. It is an easy play, since if I am doing the right thing I will know it almost immediately and the returns will be ample; whereas if the market is able to bounce further instead, I am stopped-out and back to the sidelines within the first 45 minutes (small risk vs. larger reward) + (up-opens don't tend to hold in a sick market) = (back up the truck - it's hunting season!).

Thing get more difficult if we open lower (which is why I did re-short some on Friday's close already), but after the first 45 minutes or so, if the internals are clearly negative, the opportunity for easy money remains high; since closing still lower is an easy spec.

It's hands-off from shorting only if the market either reverses higher or opens up and holds firm. In either of these cases, I would then ignore the calls of hope and promise and just wait for the further, inevitable darkness before attacking short again.

Gravity's a killer when the floor falls out.

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