In hindsight one would say shorts make a “killing” during the 2008 meltdown or the 87 crash, etc. The reality is many were not in the trade or if they were stayed too long only to turn a profit into a loss. I read about the 87 crash where after closing out a position the Friday before and witnessing the carnage on Monday the trader doubled down on a new short on Tuesday making the worst trade of his life.
Earlier I posted the following chart of September 2008. Lehman Brothers fails yet two days later the market is higher. Fast forward to September 29, 2008 where markets are now in oversold territory and due for a technical bounce. They in fact rally for two sessions at which point I imagine longs opened positions and shorts covered.
Big mistake! Over the next seven trading days the SPX lost 300 points. Now that is why I say markets reward conviction.
I do believe technicals are important right now but waiting for the perfect setup, the Elliot wave count to play out, the RSI to rise, whatever may in fact prevent most traders from experiencing a major gain if not a trade of a lifetime. During the first two weeks of August markets showed once again how quickly bear markets can move. This market may not play out like the fall of 2008 but in my view the similarities are way too common to ignore and the potential reward I believe outweighs the potential risk.
As for those technicals below are a few charts to ponder over the weekend.
Vix – A close above 48 could signal a big move lower in equities.
10 Year – you would expect a decent bounce here if a double bottom was at hand but no such luck. It’s quite possible sub 2% yields are here for a while. Not a positive sign from the bond market of US economic health.
Nasdaq – Tech is leading the way, lower. 10 handles from new lows and a very bearish candle formed today.
Images: Flickr (licence/attribution)
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