Friday, November 07, 2008

Bouncing around and going nowhere

On October 7, the S&P 500 index closed below 1000 for the first time in this bear market. Ever since, the S&P closing price has rattled around between 840 and 1005. Anyone who has been in either stocks or bear funds for the past month has seen some wild swings in their investments, but no large gains or losses in the long run. Despite protests from both bearish and bullish readers of this blog, I've been in cash the whole time.

4 comments:

Zach said...

Hi Jody, I think you’re the only person I’ve read say were going nowhere. We saw a nearly 20% rise and fall twice in October. Those are the exact reasons people put money in the market, hoping to catch part of it. Obviously a mutual fund limits your timing to closing price so I understand why you would think it’s not going anywhere. Are you hoping to get into your fund at a better price than your sale of SDS >s&p1200? FYI Doesn’t GRZZL look like a massive head and shoulders pattern?

Zach

Jody said...

As I state prominently at the top of my blog, and as I have commented at least a half dozen times now, I am not a day trader. In fact, most investors are not day traders, and these daily/weekly ups and downs are NOT the reasons we put money into the market. When I take a position in the market, I plan to stay there for at least a month. That's true even when I use SDS or SSO. The only reason I've limited my bear stance to GRZZX right now is because I think the derivatives market is at risk.

I don't see how the current chart could form a head and shoulders pattern, because there would have to be two left shoulders. Head and shoulder patterns have one left shoulder and one right shoulder.

Anonymous said...

Hi.. I am one of those people stuck in an Ultra ETF. Bought it at $40 because I feared a rally would occur while I was on vacation. Boy was I wrong. Now that ETF is trading around $20. I assume to just stick it out, but wonder, can this ETF, since it doubles losses and gains, possibly go to Zero?

Jody said...

I've wondered about that myself - whether or not a leveraged ETF like SSO or SDS can go to zero. The short answer is that if the market drops 50% in one day, then a 2x ETF should, in theory, drop 100%, which means it goes to zero. I honestly don't know whether or not that would happen in practice.

The good news is that it's highly unlikely that any index would drop 50% in one day, even in a bad bear market.

The bad news is that, since these ETFs use derivates, they may go down in value if/when the derivaties market breaks down, regardless of what the stock market is doing at the time.