Wall Street is all about Expectations

Job losses, more write-offs to come, vix low, markets close to even.

So much bad news means the markets are likely to go up.
Why? Too many bears, too much bad news, BSC bankruptcy, housing declines, credit defaults oil prices going up again... expectations short-term have been lowered such that any positive brings market up and bad news doesn't move it down.

But the time will come when the shorts are too afraid to be short and covering has occurred. The P/Es get too high. The bull rally, which is really a response to an overdone short-term bear rally in the context of the longer bear market, will come to an abrupt end as traders finally decide it is no longer a good idea to profit off of short covering and a contrary approach. The contrary approach to the numbers will be contradicted. At that point the markets will turn. It could happen at any moment but when.... that has to be seen.

Essentially the long-term expectations are still too high and these shocks will lower expectations more and as long as there is a gap between the market levels and the new expectations the market will go down. Why the lower expectations? The magnitude of the credit leverage amplification is Huge and hte markets are only 10-15% off of highs.

The best approach is to hold cash and wait for over-extended markets. Again the opportunity to short this rally when it goes to far and the short covering washes out and/or the expectations have to be lowered. That is the Opportunity.

As for me... Dug will be covered at 34.5 if it gets there and then look for the right time to get back in. The TWM will not be sold as I have already trimmed my position enough and I will wait for the market to catch up with the numbers.

Still hold some TWM
Still hold some DUG. I am still up on it overall due to the bump from 38 to42 on twice the position of the downturn from 41 to 35. Close to break even. At 34.5 I will be about even and will stop out. However, that would be an all time low on the DUG and at some point the slowing economy will reduce demand and prices will come down. May still be a bit earlier here. We shall see.

On the trading front I lost $100 on a gap fill that didn't on RVBD. After positive trades yesterday the 6% drop was not enough for even partial GAP fill due to the news. That is why tight stops are used (300 shares, stop just below the then low of the day). One or two up trades more than makes up for small losses on losing trades.

Back to work... outside the market...
Always learning, growing, developing new strategies.

Best,
Jon

This blog is for informational purposes only. It does not give investment advice.