Running through scans over the weekend we get the impression that there is potential for another panic situation setting up. Sellers are getting pretty desperate in the retail and banking sectors, among others.
Very aggressive shorts might work here. If we were in a true bear market it might make sense to get aggressive on the short side here. The problem is, we are not in a true confirmed bear market. In fact, seasonality would indicate that selling is close to exhausted and that we are more likely setting up for a strong reversal to the upside.
We noted last Friday that short positions taken here have great potential for trapping hapless latecomers, squeezing them as this random market suddenly reverses higher again.
This week options expire right in front of the holiday weekend. Games are going to get played. And since the largest number of positions are building up on the short side by those who have aggressively chased prices, it is most likely the short side that is going to feel the greatest amount of pain at some point this week.
We are itchy to put our cash to work, but conditions for doing so today are at least as bad as they were on Friday; and probably worse.
This market will give us something good over the next few days and as we sit in cash on the sidelines, it is our bet that the market is going to give us a really tremendous buying opportunity.
We know it's hard to be patient, but take another day and let others assume the phenomenal levels of risk that continue to build. When the risk takers pay a price for their impatience, then we will be able to step back in and reap the rewards for staying disciplined in a very tough market.
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