Wednesday, November 14, 2007

Bear Market Behavior

I am not saying that we are in a bear right now but i am definitely seeing bear mrkt action that's for sure. This is not your garden variety correction. I have traded thru bear mrkts before and everything i am seeing right now reminds of one big time.
Hard and fast merciless selloffs that go deeper than most people think yet people stay confident we are still in a bull mrkt(complacency). The selling is severe in percentage and dollar figures and individual stocks just getting demolished intra day. And the selling is very orderly and relentless.
Most importantly, is the low volume severe short covering that takes place in the premrkt futures. In bear phases, the mrkts take a beating for several days and then they gap them up BIG time in the morning and cause severe short covering episodes that rarely last more than one day. In bear phases, we see strength in the morning followed by fast high volume chinese water torture selloffs towards the close. I love trading in bear mrkt action. you get volatility and if you don;t mind shorting, then you will have a field day when stocks drop 10-30 bucks at a clip. There's money to be made in this kind of environment.
I could be totally wrong of course but as of right now, this is what i am seeing and until i see a change of character, that's my view. Good trading.

2 comments:

Doug said...

Agreed, Stewie - something is brewing and the gaps up aren't holding and the selloffs happen hard and fast, which makes me think there is little holding things up right now. Not a time to be putting yourself out there too far, or looking away too long if you have money in the market.

Stewie said...

the market makers are masters of illusion. They paint the tape so beautifully in these mornings gap ups to try and sell you their inventory and dump it on you hard towards the close. it's a ruthless business we chose.

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