Time to Go Short?

[stanley2008]

Re: Time to Go Short?

What about start buying long term PUTs, 6 or so month out, late this summer if the market is still going up and not crashed yet?

Keep buying a few PUTs each month, build up a staircase of PUTs until the market crashes.

Haha, come on guys. Are you talking about real money here? Or some hobby thing?

What you are saying is quite risky and bold. If you think you'll need a staircase of puts to hit the next big crash for certain why not just buy some stocks and hold them?

How much will you lose on all those puts vs getting in on the bull market in front of your nose? Maybe you'll lose 30% on buying stocks vs 100% on your puts (worst case scenarios).

If you are that certain of a crash, but can't tell whether it will be this year or next year, it doesn't help your puts a whole lot.

I'd advise trying to profit some other way - buy gold long term, or get some solid stock like AAPL and keep your finger on the trigger. AAPL will be going up a lot this month - probably break 230 in the next 2 weeks. If it drops 20 bucks and I am wrong, you only lose 10%. Try that on for size instead of those risky puts. It's fine to be a doomer, but a crazy risk taking doomer is not what you want to be.

[flintlock]

Re: Time to Go Short?

From David Rosenberg today.




As long as interest rates stay low, it seems dangerous to short the market, especially one that continues to go up--I'm referencing US equities.

Shorting a climbing market is the same as "bottom fishing" a falling market. It seems prudent to me that one would better enter trades once a trend has some evidence of reversing. Currently I see no evidence that the up trend in US equities is reversing.

+2.

I think when any real change in trends start you'll know it. Why jump the gun?

[jpatter666]

Re: Time to Go Short?

What about start buying long term PUTs, 6 or so month out, late this summer if the market is still going up and not crashed yet?

Keep buying a few PUTs each month, build up a staircase of PUTs until the market crashes.

If you've the cash, that's possible I guess. I see the market trending up slightly or treading water until March/April (barring black long-necked birds).

Reasons why the market will go up:
1 ) Because it is. The trend is your friend, never underestimate the herd momentum.
2 ) Dollar depreciation. Finster addressed this quite well.
3 ) Stimulus money is still hitting the market.
4 ) Because the Fed, GS and all the big dogs *want* it that way.

Reasons the market will go down:
1 ) Dollar spike (I don't see this without a "crisis" event)
2 ) Fed ends QE on schedule and even begins pulling liquidity (March/April)
3 ) Banking crisis renews (Hard to see this either for the moment with the outright manipulation)

Unknowns -- could go up or down
1 ) Dubai/Greece/Eastern Europe. Will this cause a rush to US assets or panic out of them?
2 ) China bubble "pops"
3 ) Dollar crash
4 ) Commodity spike

Any other thoughts? Right now, for me the likelihood of "up" is higher than "down". *Should* it be down? Sure, doesn't mean it will anytime soon -- you need only look at the dotcom bubble to how how irrational it can get.

[charliebrown]

Re: Time to Go Short?

have had a hard time with put options in my experience.
I think I made a little, but not huge. I made some big money on a few regional bank puts, but got that chipped away month after month by price action that did not come true. I actually owned puts on GGP,
long before it blew up. Each month I would lose a little, until I could not take the pain. It did blow up, but 9 months after I thought it would.

Right now you can buy a Sept 90 Spy put for 1.70. So you're making a bet the market will tank more than 20% before sept. I held SDS for too long and took a big bath. It dawned on me in September that although the SPY may not produce any real returns, its nominal price may rise because of the weak dollar/inflation. Ergo I sold my SDS in sept for a huge loss. I bought it in may when I thought the rally would fade.


With a put you are also making a bet on a nominal price decrease.

If you think the market will go down less you could buy a Sept 114.
But look at the premium. 7.50. With interest rates at zero, this is
a really big premium.

[Southernguy]

Re: Time to Go Short?




While I have been making quite a bit of paper losses so far by shorting this market, my intuition sugests that if and when SP 500 arrives at 1200 would be time to buy more shorts. I find an interesting read under.


Any ideas?







The Falcon and the Snowman

by Todd Harrison
Wednesday, March 24, 2010provided by
Commentary: 10 reasons why this is not a bull market
Kevin Cassidy, a senior credit analyst at Moody's, recently referenced the $700 billion in risky high-yield corporate debt on the horizon and offered, "An avalanche is brewing in 2012 and beyond if companies don't get out in front of this."
Minyanville offered a similar assessment entering September 2008 as $871 billion of corporate debt was set to mature into year-end. We opined there were two plausible scenarios; a credit cancer that would chew through the financial body, or a car crash that would crack the system under the weight of an indebted world.

More from MarketWatch.com: • The Witch Hunt Widens on Wall Street • First-Quarter Momentum? • New Trading Platform Anticipates Ban on Naked Access

I agree that another avalanche is building atop Credit Mountain; while risk transferred from corporate coffers to sovereign strongboxes, the magnitude is cumulative in cause and effect. And despite scary parallels between the 2008 financial crisis and our modern day sequel, savvy investors continue to monitor corporate credit as a timing mechanism for an equity downturn.
As stocks grind to fresh 18-month highs, we're left to wonder if the upside window of opportunity will remain open until corporations are again forced to pay their bar tab. Credit markets are exhibiting surreal strength and through that lens and that lens alone, the equity market has plenty of room to run.
The question is therefore begged-- will this singular proxy again ring the bell when a crimson tide is about to turn?
Raptors Await
There's no denying the bulls have captured the year-over-year crown. While you can agree or disagree with the synthetic catalysts, price is the ultimate arbiter of variant financial views. The market is never wrong; we should never let an opinion get in the way of making money.
As investors key on corporate credit, there is a litany of causal risks waiting in the wings. With a conscious nod that these could conceivably create building blocks in a wall of worry, I humbly submit 10 reasons why we're witnessing a cyclical bull market in the context of a prolonged and painful secular bear stretch.
• Questions remain on a Greek aid package in front of 20 billion euros in debt that comes due in April and May. This dynamic is not bound by borders; should an accord be reached, as expected, the approach will be tested when the next "lifeguard" begins to drown.
• New health care legislation could add hundreds of billions of dollars to already yawning budget deficits. That chasm can only close through upward taxation or austerity initiatives; neither is pro-growth and both drain consumption. This, of course, comes at a time when the "interconnectedness" of governments and markets has never been higher.
• State budgets are cracking and a recent report from the Pew Center estimates unfunded pension liabilities are an eye-popping $452 billion. While I expect a Federal bailout package, as discussed in January, it's akin to moving money from one pocket to the other.
• Social mood is tenuous at best and deteriorating at worst. As the great divide continues to evolve -- red states vs. blue states, Main Street vs. Wall Street, haves vs. have nots -- societal acrimony has evolved into social unrest in some parts of the world, and economic hardship is pointing an unfortunate needle towards geopolitical conflict.
• Complacency abounds, as measured by traditional volatility measures such as the Volatility Index. While we've witnessed prolonged periods of subdued volatility (2004-2006) and healthy debates rage regarding the indicative validity of this measure, risk premiums are at levels last seen in June 2008 -- a few short months before the financial crisis arrived.
• From Google Inc.-China to USA-Toyota Motor Corp. to EU-Greece, the seeds of protectionism continue to sow. That posturing is on the opposite end of "globalization" on the prosperity spectrum.
• While the stated unemployment rate hovers just below 10%, almost one-in-five Americans is underemployed; that means they're not working, stopped looking, working below their abilities or working part-time because they can't find full-time employment.
• Economic perspective. Interest rates have one way to go, price-to-earnings multiples never troughed, and debt-to-GDP ratios will approach or exceed 100% in all G7 countries by 2014, with the exception of Germany and Canada, according to John Lipsky at the IMF.
• The Congressional Oversight Panel warns that commercial real estate losses at banks alone could reach $300 billion starting in 2011. Almost half of those loans are concentrated at smaller institutions with total assets under $10 billion, and those are the same banks that account for almost half of all small business loans.
• It's easy to forget about the housing crisis; in terms of "what matters now," this concern almost feels passe. We must remember that massive amounts of residential mortgage backed securities are mis-marked at best and toxic at worst, sitting on the balance sheets of private and public institutions and by extension, in bank accounts across America. This is in addition to the manifestation of under-water mortgages (negative equity) and foreclosure trends throughout the land.
Total Recall
Do I think the system is broken beyond repair? No; I believe there will be massive opportunities once we've taken the medicine of debt destruction so long as calmer heads prevail.
That could take another five to seven years but it's difficult to foretell; a lot depends on how we navigate a multi-linear dynamic that includes currency readjustments, the evolution of credit, $500 trillion of global derivatives, two-sided regulatory reform, the shifting social mood, geopolitical fragility and trade relations.
Is it possible we "echo" higher before that comeuppance arrives? Sure; these aren't natural markets anymore and we must respect both sides of the financial equation. Given the path we take trumps the destination we arrive at, there's only one way we can reconcile these seemingly disparate data points: carefully, and one step at a time.
With quarter-end bearing down and performance anxiety picking up, market psychology is emerging as the most important of our four primary metrics. The last round of fundamental data points (earnings) beat expectations on the aggregate, the bulls have the technical baton above S&P 1150 and the bank index 50 (resistance comes into play at S&P 1200) and while stateside structural dynamics are currently steady, we haven't heard the last of sovereign situations on the other side of the pond.
If you asked me for my near-term opinion, I would offer that the tape tops out before quarter-end under S&P 1200, consistent with the path of maximum frustration as fund managers reach for performance. Remember, when S&P 1150 was surmounted, a lot of shorts covered, removing a natural layer of forward demand. From there, we'll monitor the second quarter flows, which should help shape the tape into the beginning of April.
We each have unique time horizons and risk profiles, which is why blanket advice is so very dangerous. I don't believe in punditry; I believe in proactive preparedness and individual responsibility for our financial choices. It's my hope that by painting the big picture landscape -- and adding color by numbers in the near-term -- I've added some value as we together find our way.
Todd Harrison is the founder and chief executive officer of Minyanville. Harrison has a position in the S&P.

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[icm63]

Re: Time to Go Short?

Interesting chart...

http://www.itulip.com/forums/showthread.php?t=14930

[Ben]

Re: Time to Go Short?

Interestingly, this bear market seems to be much the same as any other.

Have a glance at this study of previous severe bear markets "The Same Old Bear"
http://www.osam.com/commentary.php

40% falls are nearly always followed by a year of strong performance (exactly as observed) and then a year of decent performance (which we have just entered). It's only in the third year after severe bears that returns are on average ~0%.

Also there's the danger of inflation and continued stimulus.

What do people think about going long on the VIX index through one of the VIX ETNs (VXX for short-dated or VXZ for medium dated futures) or directly through futures? (Beware that the futures curve is in quite steep contango) The VIX is only at 17, below the long-term average of 21. "Good times" seem to have a VIX of 10-20. Dodgy times 20-30. Crises 30-80. Are these good times?? Going long on the VIX could act as insurance against an equity fall, as well as a hedge against a return of nervousness in general, even if the nervousness doesn't bring a decline in nominal stock prices.