Though I like to hedge, I haven't been very active in shorting and in fact enjoy the process of looking for sales. I haven't been making fat profits since the up days in this market are one day fireworks and few and far between, but it has been intellectually challenging and a joy to write my blog daily.
But I want to stress that people make no sense sometimes. They will go out of their way to buy stuff on sale and go extremely wild when a store has a going out of business sale; like my local CompUSA did. When this type of occurrence happens in the billion dollar marketplace, people flee. Many of these companies are trading at levels significantly below their true economic value. While most sales have us overspend (like the dollar store business plan) and the clutter becomes worthless, stocks don't become worthless - they either stay in business or they don't.
Technically, the market is in free fall. Bloomberg today posted
http://www.bloomberg.com/apps/news?pid=20601087&sid=afseqpJK0p2E&refer=home
that the market internals have the SP500 drop an additional 200 points to the 2001-2002 lows. Anything one touches keeps fading into red. People are selling selling selling.
Fundamentally the picture keeps fading and expectations are being reduced.
No one wants to buy, especially after big one day moves since we have been conditioned of late to fade them, and now people are waiting for others to make the first leap in. This is a one way market downwards and obvious to everyone. The picture is cloudy and scary but has to be to prevent people from buying. As mentioned before, to make money you buy things on discounts and sell at a premium. The rate of acceleration that has come with this pessimism shouldn't lead to a gradual uptick in price but a stampede probably caused by short sellers needing to close their books.
The risk is on the upside, but so is the greater return.
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