Tuesday, October 07, 2008

Groundhog Day

The S&P 500 index passed below 1000 today, closing at 996 and falling ever closer to my low prediction of S&P 940 made all the way back in January. The very first time that the S&P 500 closed above 1000 was . . . .

February 2, 1998.

The steepness of the stock market's fall - 20% in 12 trading days - is finally starting to resemble the action at a major low. However, even if a multi-week rally begins tomorrow, this low will not necessarily prove to be the low. I will remain in cash until the end of the next rally (whenever it occurs) at which point I will make my first investment in GRZZX, the derivatives-free bear market mutual fund. I don't know when that opportunity will come, so I'm not holding my breath.

The thing about being 100% in cash is that, no matter what other investors are going through, every day looks exactly the same to me.

6 comments:

Anonymous said...

I was wondering how the short funds like GRZZX and BEARX doing with the short sale ban? I suppose they shorted some stocks a while back, but the new restrictions must be hindering their trading options.

Oleg

Jody said...

Thanks for reminding me, Oleg!

The ban on shorting 800 stocks was supposed to expire 3 full trading days after the bailout passed, which would mean that shorting will be allowed again Thursday morning. That assumes of course that a new ban is not announced tomorrow.

All indications are that GRZZX is still performing as it should despite the ban. This would change of course if/when the SEC banned all stocks from short selling.

Anonymous said...

SDS traded 74 million shares today and has functioned perfectly through 5% SPY intraday moves. QID, TWM, DXD all same. Why a mutual fund? All the analysis and blogging, target in sight, and you’re watching from the sidelines? Just curious why you won’t put your money where your blog is? Rally or no rally you could have scaled into a short position several times. How big of a rally are you anticipating?

Jody said...

See this post about the difference between my January forecast and where the market is going right now.

GRZZX is the only fund which shorts the market without using derivatives. If it turns out that I was wrong about the meltdown of the derivatives market, then that will be good news for the entire global economy, and I won't mind missing some extra returns anyways.

However, if derivatives do start to implode, and there have been hints of this already, then I don't want to be caught holding the bag when the you-know-what hits the fan.

Of course I wish I could have ridden SDS this far, but bottoms are impossible to time, and I was just one Congressional hiccup away from getting more than 21% from my SDS position anyways. Staying in SDS too long out of greed, or getting back in to SDS now out of regret, is a bad idea either way.

Dan said...

Jody,

Your target on the DOW is 8500. At the rate things are happening, it looks like we may get there sooner than expected.

If we get close to 8500, does that mean that according to your prediction that we've hit bottom and that a long position in the market be taken?

Jody said...

No.

Again, the January Dow 8500/ S&P 940 forecast was a long-term experiment analogous to making a seasonal hurricane forecast for the Gulf Coast. It's fun to see if the number of hurricanes ends up matching the prediction, but you should never take your eye off of this morning's satellite images.