Thread: Dow poised for a big drop?

401(K) up to ~75% in cash right now. Yup, passing on a lot of opportunities these days... but I have no control.

The other ~25% is in commodities.

The big unknown here is the huge amount of money flowing into the markets from stimulus funds. While the fundamentals are not good, the stock market may be the best of the bad options right now. Personally, I am heavy in stocks and keeping tight trailing stops.

Personally I've been doing a lot better with my trading since I stopped speculating on what I think is going to happen, and began focusing on what I see is actually happening.

If I go by what I think is happening/is going to happen, I'd agree with you, that the markets are headed for a big drop.

However what I see happening is a massive bull run where the Dow is up 40% in a year.

So I'm riding the trend until the market makes a clear signal that things are changing (it's for each individual to determine a signal that makes sense to them).

Using tight stops and good money management my personal risk of a "big drop" is minimized and within acceptable parameters.

The money is in trading what you see rather than what you think or predict... it's way easier to trade the present than it is to predict the future.

couldnt agree more with you. The way I view my trading is this: right now its an uptrend until it proves its not - so much more focused on the longs and the follow thru (both intraday and swing trades) is much better long.

Dont try to guess - keep it simple and if the weekly and dailys are making higher highs then focus on the longs.

Traderfeed and Alphatrends - 2 of the best non BS trading blogs

Originally Posted by Jonleehacker

However what I see happening is a massive bull run where the Dow is up 40% in a year.

I think it's up more like 70% for the past 12 months?

So everyone here is playing the old "The Trend Is Your Friend" play huh?

I guess it's OK with stops in place... But following ridiculous bull markets with no fundamental basis doesn't really sound like skilled investing to me?? Missing something here??

Isn't it time to jump in and buy major puts now? How does this market have the gas to keep going up?!

Cheers,

- Hakrjak

Originally Posted by hakrjak

following ridiculous bull markets with no fundamental basis doesn't really sound like skilled investing to me??

In my book, the proof of skill is in the profit.

You can have your opinion about "ridiculous bull markets with no fundamental basis" but if it was me putting my money in harms way based on an opinion, I want to do my homework and really understand what is going on.

Unless you really believe that all the millions of people pouring money into the markets are idiots and you are smarter than they are...

Not saying it isn't possible, because it does happen, but I don't have confidence that you really know why the market is going up right now. And if you don't know that, then you're just gambling if you are buying puts "hoping" it will go down.

Trying to ignore the potential forecast and waiting it for it to happen is like waiting to put your seat belt on after you get hit with the accident. While tight stops might offer some protection, when the brunt of the fall hits, it will be costly.

I anticipate the market will decline before 2010 is over. Why? New capital gains taxes take hold in 2011 ... there should be a firestorm of selling to lock in gains before the new year's rates take hold. There is now a substantial direct incentive to SELL before 2011. This means a sell-off is coming and I believe it will be in the fall. (Expectation and logic would assume it would be coming in Nov/Dec ... so I think those will adjust and sell earlier.)

Also, I expect muni's to rally despite dour yields.

Originally Posted by PhxMJ

Trying to ignore the potential forecast and waiting it for it to happen is like waiting to put your seat belt on after you get hit with the accident.

That analogy only would only be fair if there was a huge upside to not wearing the seat belt, just as there has been a 40% or greater gain for going long in the past 12 months, despite the lack of fundamentals.

I actually think that if you boil the 2 opposing view points in this thread down, it would come to the classic disagreement between fundamental vs. technical traders.

My favorite comment on that topic comes from Van Tharp, who said something to the effect of, "You don't trade the markets, you trade your beliefs about the markets." So true!

In his book he has an exercise where he takes (I think 4) different traders and has them trade the same market during the same time period. They have 4 completely different approaches, based on all kinds of different believe system. If I recall correctly at least 3 made money and the other 1 was close to break even, and their actions sometimes seemed at complete odds with each other, but they all were following their believes (they were also all successful traders).

Originally Posted by PhxMJ

Trying to ignore the potential forecast and waiting it for it to happen is like waiting to put your seat belt on after you get hit with the accident. While tight stops might offer some protection, when the brunt of the fall hits, it will be costly.

I anticipate the market will decline before 2010 is over. Why? New capital gains taxes take hold in 2011 ... there should be a firestorm of selling to lock in gains before the new year's rates take hold. There is now a substantial direct incentive to SELL before 2011. This means a sell-off is coming and I believe it will be in the fall. (Expectation and logic would assume it would be coming in Nov/Dec ... so I think those will adjust and sell earlier.)

Also, I expect muni's to rally despite dour yields.

So will you be selling anything that's gone up the most in the past year, or do you have specific sectors in mind that would benefit from short selling the most?

Cheers,
- Hakrjak

Originally Posted by Jonleehacker

I actually think that if you boil the 2 opposing view points in this thread down, it would come to the classic disagreement between fundamental vs. technical traders.

I don't know if there is a real dissagreement there, because I'd say that the technical trade, as well as the fundamental trade is to sell here. That's why I'm kind of eager to jump back in, because this is the first time in a very long time that I've seen both indicators pointing in the same direction.

You've got a situation where the market has swung wildly to the upside, and is probably due a correction of whatever size.... And a bull market which there are no fundamentals to support.

I'm thinking if we get any good news at all back in housing -- Money will flow out of the stock market back into Real Estate as it has in the past.

The argument that "The market will keep going up, because it has been going up for a long time now" -- quit working around the time of the dot com bust, and the housing implosion...

Cheers,

- Hakrjak

Lets just say, I don't believe the reports that the recession is over. While employment is a lagging indicator, employment is needed to spur consumer spending. I don't see employment getting better; if anything, worse.

As the year-end approaches, shorting the general market might be worth a look dependent on the macro-economics (GDP? Employment? Cap-n-trade pass?) I moved to mostly cash earlier this month, but still move-in-and-out of gold, silver, and CEF's dependent on technicals/premium/discount.

Also, in general, I don't invest in stocks -- I trade them. There is a big difference. (I think the last time I held a stock > 6 months was during the Clinton Administration.)

Also, with the new HC law, muni's and MLP's have gained attractiveness due to forthcoming higher taxes on cap gains and dividends.

I seriously believe the economic downturn is in front of us. This country is heading into unchartered territory and I believe it's glory days are coming to a screeching halt. It will be more difficult for entrepreneurs to succeed as more tax is put on them.

Originally Posted by PhxMJ

Lets just say, I don't believe the reports that the recession is over. While employment is a lagging indicator, employment is needed to spur consumer spending. I don't see employment getting better; if anything, worse.

100% agree.

However your statements have been equally true for the past 12 months, while the whole time the markets have rattled off one of the biggest winning streaks in history.

To me the market does not equal the economy. There may be points where the two could be seen to be synchronized, but in general, I don't expect a steady correlation.

Originally Posted by PhxMJ

Also, in general, I don't invest in stocks -- I trade them.

Same here, that's why I'm totally good with giving back 20% (absolutely worst, "plane into a building" case scenario) of the 40% I've made from this run. As a trader that's part of the game.

If the market turns downward... no big deal, that's just a different trend going in a new direction

Originally Posted by Jonleehacker

If the market turns downward... no big deal, that's just a different trend going in a new direction

I haven't traded options since the late 90's / early 00's (Where I promptly lost $15k betting on Internet stocks, and stopped -- I'll admit)... But the reason why I'm thinking this is a big deal is because it seems like markets turn DOWN a lot faster than they go up... Especially in this climate of uncertainty, high unemployment, low growth, etc -- So if you can accurately predict a big downturn, your potential to make money with PUT options is going to be much greater than with CALL's (Unless you have some inside info about a stock going up soon, which is illegal).

Now if you're just trading stocks, and looking to make a few points here or there, I totally agree with your point of view.... But if you're looking to turn $10k into a $100k very quickly, then I think this is worth a closer look.

Cheers,

- Hakrjak

Originally Posted by PhxMJ

Trying to ignore the potential forecast and waiting it for it to happen is like waiting to put your seat belt on after you get hit with the accident. While tight stops might offer some protection, when the brunt of the fall hits, it will be costly.

I anticipate the market will decline before 2010 is over. Why? New capital gains taxes take hold in 2011 ... there should be a firestorm of selling to lock in gains before the new year's rates take hold. There is now a substantial direct incentive to SELL before 2011. This means a sell-off is coming and I believe it will be in the fall. (Expectation and logic would assume it would be coming in Nov/Dec ... so I think those will adjust and sell earlier.)

Also, I expect muni's to rally despite dour yields.

I agree here as well. The fed is pumping money into the system and for lack of a better place to get a return, it ends up on the stock markets. But with the huge gains many have had over the past year and the cap gains tax increase for '11, there will be a huge sell off at the end of the year. No question about it. I suspect it will happen in Nov/Dec all big money manager will want to ring out every last cent and wait for the signs of mass selling and then they will all run for the doors. Dec will be an awesome time to sell puts and Jan 2 will be a great time to buy quality stocks.

Pro money is trying to get individual money in now to try and chase the market higher and cash out the pro money. Volume declining on this rally, I say we have a significant correction immediately.

The catalyst will be the treasury market driving up interest rates. If some geo-political or major financial event doesn't happen across the pond driving "flight to US Treasury quality" I see bonds falling this year. This combined w/ fundamental reasons of tax consequence selling motivation mentioned will provide strong downturn pressure.

Too many talking heads on TV are trying to talk this market up.

Originally Posted by CommonCents

Too many talking heads on TV are trying to talk this market up.

That's the other thing that gave me pause.... When you see the # of Bulls on CNBC like you do right now -- You know it's time to exit. Sad that it took me years to learn this basic fact...

- Hakrjak

Originally Posted by hakrjak

That's the other thing that gave me pause.... When you see the # of Bulls on CNBC like you do right now -- You know it's time to exit. Sad that it took me years to learn this basic fact...

- Hakrjak

I haven't had a tv for nearly a year now and this may be one of the main reasons I DON'T miss the tv. I used to leave cnbc on nearly all day either watching actively or just in the background. And I think it had a negative impact on me and my trading/investing. I am glad to eliminate the 'noise'.