Tuesday, January 21, 2014

Where the Action Is

If you are a futures trader, or, an FX trader, there is not much out there.  With low volatility, moves take longer.  The holding periods need to be extended to reach the same profit objectives.  That exposes a trader to more risk, as longer holding periods = more variance.

Commodities are in a bear market.  Unlike the equities market, a bear market in commodities brings much less volatility, not more.  Just as equity bull markets are dull and filled with slow steady uptrends with quick and sharp down moves, commodity bear markets are dull and filled with slow and steady downtrends with quick and sharp up moves.  So the worst possible market for futures traders is an equity bull market with a commodities bear market.

The action is in individual stocks.  In particular, biotech stocks.  The move is not driven by any individual fundamentals, but a sector shift to biotech, where an aging demographic worldwide is a positive.  The mania in the daytrader community now is to find the next ICPT, a stock that goes up 400% in two days.  The greed for highly speculative, and mostly suspect biotechs is reaching a level where you can start establishing long term shorts at these levels and sit on them.  Not one, but a basket of speculative, junky names that will eventually go much lower, regardless of what the stock market does.

The only problem is being able to find a borrow on many of these small cap names.  If you can borrow these stocks that pop on insignificant press releases and data points, and just sit on them, like reverse investments, you short and hold, waiting for the weight of the fundamentals to bear on the stock, as the rats jump ship.  I already have a huge boatload of names right now, its just a matter of which ones are the worst.  Just look at the YTD percentage gainers list, at least 1/4 is a speculative pump and dump play.

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