dexion10 (28.18)

dexion10's CAPS Blog

Shorting BIG today.... Bulls & Bears need a sell off soon

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January 02, 2009 – Comments (13) | RELATED TICKERS: TWM , CHRW , TM

Even if this is a new bull phase or just bear rally... the bottom line is that this market is overbought (everyone in the media is bullish or constructive on stocks).

In my personal account I've gone VERY short today and will accept whatever near term rally the market can muster because the reward is potentially big here...even if the next sell off is brief.

We've just witnessed the following:

1. low volume mark-up

2. crappy stocks leading the way (homebuilders, basic materials, steel, and autos)

3. a double top at S&P 917 (we have a bear chart again)

4. Hedge funds coverging shorts as they do redemptions

5.Funds avoiding the selling of their winners until early Jan... to avoid 2008 taxes and to window dress their portfolios.

I can't help but short this.

Mind you I went VERY long the 2x Russell 2000 for the past two days... but I sold it today and I am 90% short.

Added shorts to:

RYL - Ryland Homes

TM Toyota

TSO - Tesoro Refinery (one of the most overbought stocks I can find & I hate high cost refiners).

CHRW - Trucking logistics firm trading at 27x earnings, overbought and over-priced vs. peers

TWM - 2x ultra short Russell 2000

13 Comments – Post Your Own

#1) On January 02, 2009 at 2:02 PM, HooDaHeckNose (98.54) wrote:

I hope that you're way early on this because I'm playing a rally in January. Right now, my gut tells me we'll rally into Feb and then crash hard by March.

But what the hell do I know!!!

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#2) On January 02, 2009 at 2:03 PM, Option1307 (30.71) wrote:

Good thoughts Dex, you beat me to this posting.

I've been thinking this same thoughts all morning. Although, I have not pulled the trigger and added shorts as of yet. I'm still debating whether I go short today or wait until after the weekend, likely the later. I'm not a fan of holding positions over the weekend during these crazy times, it seems the government likes to "help" us over the wekeneds (and thus changes the market dynamics).

There is somewhat of a resistance at around SP500 = 900, as you mentioned, and we are approaching that today. People are also caught up in the holiday euphoria, which is based on nothing besides holiday eggnog (delicious).

SKF is around 103.00 today. That is fantastic! I buy this (2x short financial) everytime it gets below 105, hold for about a week until it gains 10-20% and then sell for a nice, and quick, profit. Holding longer could lead to a huge profit, but I'll take the small profits because they are practically guarenteed. Don't be greedy int his environment, take your profits. This is simple strategy and has worked for me 4/5 times over the past few months. I'm looking to repeat it again. Maybe today, probably not until monday though.

Thanks for the post Dex, it's nice to see others are thinking the same things as me. Good luck and happy shorting!

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#3) On January 02, 2009 at 2:49 PM, anchak (99.86) wrote:

I think Monday is a very important day ....... Right now S&P crossed 920.....a few times and did claw back - volume is low - but you know Technical traders....if today there's a close above 920......Monday will set the tone.

I am only short CRE - Long otherswise ( Oil,Gold etc)

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#4) On January 02, 2009 at 3:05 PM, dexion10 (28.18) wrote:

THIS IS THE BLOW OFF TOP FOR THIS RALLY.

Major indexes like the Nasdaq are up 3%on the day and all varieties of low quality stocks are rallying today... this is what a top looks like.

This is like XMAS 2.0 FOR ME!!!

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#5) On January 02, 2009 at 7:36 PM, nuf2bdangrus (< 20) wrote:

I closed most of my longs, including PFF, PHR, MUE. Holding a little gold, some jnj, and DOW for now.

I inititated short positions in M and TIF. I'm holding short AZO and am getting spanked. Overbloated overvalued pig.

They may press this rally, and everybody is too bullish on TV, but the smart money knows we are likely headed lower. They know kensyian economics doesn't work.

Consumers are upside down on houses, and in debt. They, like me, will save. My 401 has been parked for a year.

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#6) On January 02, 2009 at 8:16 PM, kaskoosek (99.69) wrote:

dexion10

I disagree with you realistically, but fundamentally I agree with you.

Confusing?

I do not like to short this early. We seem to be in a bullish trend. I am waiting for a sign of reversal to short. Technicals like the PSAR and the stochastics are very important. They take into consideration trend reversal.

I really like technicals, because they mimic the stupidity, fears and idiosincrasies of investors.

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#7) On January 02, 2009 at 8:52 PM, strongw (62.05) wrote:

The market is definitely overbought. Did you find that SRS is up? The real estate stock fell, different from Wednesday. Given that, the market are manipulated by institutions. You even can not find lots of worst stocks' available shares for short. However, the market will fall sharply sooner or later.

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#8) On January 02, 2009 at 10:33 PM, Jerryskidz (32.87) wrote:

You are flipping a coin. When a rally stalls it is obvious. And when the reversal happens it is over multiple days and 100s if not over 1000 points off the dow.

Wouldn't it be more prudent to look for obvious signs in a reversal (real bad news = market tanking) vs. an arbitrary point that you deem the top?

Nothing is guaranteed in life.

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#9) On January 02, 2009 at 10:34 PM, dexion10 (28.18) wrote:

We should see a reversal by Tuesday of next week I'd think.

But I must say hats off to the bulls they ran this market harder and further than I thought they would.

But the market always goes further than you think it can before it reverses... so mission accomplished I guess

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#10) On January 02, 2009 at 10:46 PM, JakilaTheHun (99.94) wrote:

I think the market is due for a retreat next week, but I'd still be afraid to short given the fact that stocks in general are still underpriced. There's more to lose than there is to gain and the long-term trend will be upwards --- especially once inflation comes in.

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#11) On January 02, 2009 at 11:43 PM, dexion10 (28.18) wrote:

TheHuney:

Thanks for your comment. I hope the market retreats at least a bit next week. I can't pretend I won't be very surprised if it doesn't but I also have to be prepared to be wrong... I have no magical powers to predict the market... I just think shorting here is a better bet than buying.

As for stock being underpriced I actually don't think they are. Earnings this year will likely be $60 and if you put a 15x multiple on that you get a S&P 500 at 900. So by that measure stocks are a bit overvalued.

Now if we concede that there is a great deal of uncertainty and that a discount is perhaps deserved then we can argue stocks are a bit ahead of themselves.

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#12) On January 03, 2009 at 12:58 PM, dexion10 (28.18) wrote:

kaskoosek: good point regarding the reversal not being present.

But one thing is for sure with the market this overbought it will not be sprinting higher, even if it could, the sprint higher won't hold.

Selling is required here. Even bulls who want this rally to last 365 days need to see some selling along the way to give these charts some juice.

SEE THIS LINK:

http://stockcharts.com/charts/indices/mcsumnyse.html

Here is a graph that shows how overbought we are and also shows the index summation graph.

1. Graph of the Market

2. Overbought Oscillator

3. NYSE Summation Index Ratio

The 3rd graph is like a bible for traders. It's a lagging indicator so it'll miss the first 5-10% move but then confirm that move can be bought or sold.

The key two it is to look for reverals of trends and also for secondary accelerations. This rally is having a secondary acceleration which typically happens before pullbacks (big and small).

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#13) On January 04, 2009 at 7:22 PM, Option1307 (30.71) wrote:

dexion10

Any additional thoughts about your shorts this week?

I decieded to hold out on my shorts as I did not begin any last week. I am likely to add some Monday am.

I do realize that the market is extremely overbought based on technical analysis. However, it did crash through the upper limit (~915 on SP 500). Thus, I'm a little nervous about going short right now as I fell we may be able to rally to the next test (~1000 on SP 500).

Unemployment and jobless claims data comes out this week and I see no indication that these numbers will be beater than expected. Also, car sales data comes out this week, and again, I doubt it will be a pretty picture. These both point towards pushing the market back down.

As I mentioned, SKF is around 102 right now. I always buy it around 100 and ride it up. This strategy hasn't failed me yet, hopefully it won't break my lucky streak now.

I repsect your thoughts so please keep me posted on your ideas...

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