Sunday, September 14, 2008

Tomorrow is Going To Be Very Interesting

As of now, it seems like Hank Paulson is actually going to keep his word (for once) and not offer taxpayer money to help finalize a Lehman bailout. Futures are down significantly (Dow -293). I read other bloggers talking about a market crash tomorrow. Ergo, the title for this post seemed appropriate to me.

I have no clue what is going to happen tomorrow. There is still a lot of time between now and tomorrow's open, and a late-second, government-sponsored plan still wouldn't surprise me. Right now, this situation reminds me of the Bear Stearns event in January, and that turned out to be a short-term bottom. In no way am I suggesting we are near a bottom in this. What I am saying is I am going to wait until tomorrow opens before predicting what is going to happen, because this market has been as unpredictable as any I can remember.

I have to say I am happy to be in 100% cash, although obviously part of me wishes I was short at least a few financials going into Monday based on what things look like now. The risk from my perspective was just too big to be short or long going into this weekend - how many of you really thought there wouldn't be a government-funded bailout by this time when the weekend started. I knew I did not want to step into a Monday morning gap like we had with the Fannie-Freddie bailout that would give my account a big hit. Since I have had a pretty good year up to this point, I am focusing more on holding onto and maintaining my gains rather than grow my account agressively, mainly to the market atmosphere. Perhaps that's the wrong mindset, but it is right for me. If good opportunities come up, I will look to continue to grow my account but right now, I just don't think there are many of those out there.

Tomorrow, it looks like many traders will small fortunes if they were short, and others are going to take massive hits to their accounts and possibly their life savings. I give those traders who were short great credit - they have more guts than I do. I will likely continue to just watch tomorrow from the sidelines and use it as a learning opportunity. I was only 10 years old when the 1987 crash occured, and I did not trade through the 2000-2002 bear market, so these panic situations (if we do indeed get one) are something that I need to experience first before trying to attempt to trade them correctly.

If you are a risk taker, and want to try and catch more downside, I would focus on the brokers and big banks that haven't bounced as much as the others. Some banks like WFC and USB have held up fairly well. I would instead focus on names like C and WB, both of whom's charts look poor. Other names I would watch are FCSX, IBKR, GS, MS, LM, and BLK.

I would also try to take profits when you get them. No one has any idea how this whole thing will exactly transpire, but it wouldn't surprise me we get some wild swings up and down which can wipe out any profits on shorts you get very quickly. It is going to be a very volatile environment, and in that atmosphere, I wouldn't be greedy.

Whatever happens, good luck. The potential exists for this to be a historical event in our nation's economic history, and no matter what your outlook on the market is, let's hope we can survive it over the longer term as a country (and learn some lessons from it as well.)

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5 comments:

Anonymous said...

"I give those traders who were short great credit - they have more guts than I do."
They have as much guts as the ones who are long. I think anyone who took new positions before this weekend was simply just gambling.
I'm 100% cash right now, too. I might take on a short or two if it just tanks and get out quickly, then let market sort itself out for a few days, and see what emerges from it.

Anonymous said...

On second thought, I think I'm just going to watch.

Ragin' Cajun said...

Will be interesting. My first thought was to wait for strength to dump a few positions, but I'm starting to wonder if we even get a bounce.

Will be interesting to watch.

Anonymous said...

VIX is way low right now for capitulation bottom but who knows VIX might climb high enough tomorrow. But again still have AIG Wamu and Citi who knows what might happen to these and others. Still to much uncertainty.

Mac said...

Ragin, I don't think anyone knows what is going to happen. I would love to short some of the financials but I don't know if I have the guts. My guess is that we will still head lower even with the gap down, but at the same time, there will be SO many wild intraday swings that for my style of trading, I would likely be stopped out of positions anyway. If this market wasn't so stupid last week, I would likely have had some shorts still on here with a cushion to let them run. Oh well.

The VIX will be an important thing to watch. I can't see a bottom happening today but again, who knows? If it gets close to that 40 mark, I would probably stop looking at shorts, although still stay away from longs.