Monday, September 15, 2008

A bear is a bear is a bear

The S&P 500 index has just closed at a new bear market low of 1192, which is a 24% loss from the October '07 peak. The SDS position that I bought last month is up 11% according to my online broker, meaning that I'm up 5.5% in one month when my cash position is included.

(Side note: The S&P 500 index is now lower than it was on December 13, 2004, when it closed at 1198!)

I'll re-iterate some important points here:
  • A bear market isn't over until the charts say it's over. No amount of hoping, justifying, or expert opinion on TV will change a bear into a bull.
  • News items like takeovers, bailouts and bankruptcies may create some big wiggles in the short term, but they have little influence on longer trends.
  • When in doubt, I go short (SDS, GRZZX) in a bear market, and go long (SSO, SPY) in a bull market.
  • For the love of God, don't go long in a bear market!
The bottom line is that a bear market is a bear market, and it doesn't make sense to treat it like anything else. Even though I've been getting no guidance from my short-term market indicators recently, I knew that my SDS position would eventually pay off.

Someone asked me why I didn't put my remaining cash into SDS today, and the answer is that there still isn't a bearish consensus among the indicators like there was, for instance, in May. I'm perfectly happy though, because right now I'm outperforming the Motley Fool newsletters, mutual fund buy-and-holders, Bob Brinker market-timers, and all-cash-wait-and-seers. My 50% cash reserve lets me sleep at night, as it turns any unexpected rally from a short-term loss into an opportunity.

Of course this is all predicated on my cashing out with a gain! That's what I have to work on now...

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