A short but important look at being short

I am curerntly at the UCLA biomed libarary where I have spent many an hour in the past. I don't have much time now but I did want to bring up one point:

I asked my Dad if a friend of his, who is past retiremnt age and is by no means rich, still had money in the market in large sums because I was going to try to tell him to at least consider doing his own research and considering taking some money out of the market. He is not in a position to lose large sums of money and he is a family friend so I wanted to at least open up his eyes and make his own decisions. Apparently he pays for a broker or "guru" to give him advice and it has worked ok for him so far.

I was shocked to hear that he was no longer long and was now shorting the markets. It freaked me out because the standard is that when everyone you know is doing something it makes the situation ripe for things to go the opposite way. Just like the story of the smart real estate investor who sold all his properties at a huge profit in 2005 after his supermarket checker pushed him a real estate broker card since she wanted a second job and the market was so hot right now.

The economic conditions look terrible. The data keeps re-inforcing it. Yet the market has not responded in kind. Greg Ruffin thinks that this is because the investors are in denial and hope and he may be right but I have a more cynical idea:

Is it possible that the very smart, very knowledgeable, most informed hedgies, like the guys at GS and the like, are looking at this situation and pumping in just enough money to trigger buy to cover stops and short squeezes and then selling into them for profits???

I experimented with SRS at 94 yesterday after the consumer confidence and home prices data were released wit only 20 shares as a test and since I could not follow the market since I had to leave for LA.

I got stopped out just below the previous days' close at 92.17.
Today apparently SRS jumped 5%.

I have NO EVIDENCE as of yet to support this theory and so it is just a ponderance for right now but when I have time over the weekend I will try to investigate this some more. What is causing the markets to go up even though the smart guys know conditions and the charts are all pointing down?

I don't know right now. But I gotta say one thing it makes me nervous when newbie investors, according to the message boards, were heavily shorting COF at under 40 a while ago. It just seems like easy money... but again I need proof of this not just speculation.

To Be Continued...

Best,
Jon