Friday, October 16, 2015

Middle of the Migration

If you ever watch those nature documentaries, you often see the herd of zebra and wildebeest move from north to south, and then back north.  They are following the rains, to go to where the grass is greener.  It was the start of the dry season in August, and at the peak of the drought, you could sense the fear.  The weakest animals collapsed and died.  These were the overleveraged funds and individuals.  You had the grass all chewed up and dried out by the end of September, but that was the end of the dry season.

You have started the migration back to greener pastures.  It is raining again.  But the nerves from the drought are still there, but day by day, the herd gets more comfortable.  It has been 2 1/2 weeks since the drought ended, and the migration started.  Usually these migrations last 4 to 6 weeks, so there is still time left for the herd to saturate the plain and eat up all the grass.  If the conditions are very favorable, then these migrations can last for several months and prices can continue to creep higher and higher.

That is the tricky and difficult part about shorting.  When you are short and wrong about the length of the migration, you get trampled by the herd.  It is a dangerous game, short selling.  It works much better for individual stocks than for the overall market.

Even though the S&P is down for the year, if you include dividends, it is about flat.  I don't know about others, but for me, it has been a tough shorting market even though the market is flat.  The scars and habits from the previous years are hard to get rid of.  I still find it much easier to buy dips than to try to short rallies.  Because you never know when the rally that you short is the one that goes on for months and months with no pullbacks.  The fear of that possibility keeps me from doing more than surgical strike short campaigns, where I try to stay in the trade for a few days at most, and get out even sooner if the market doesn't go down at the time that I expect it to.

Staying bullish and with the growing herd.  The FOMC meeting, BOJ meeting, and the China propaganda/central planning meeting are all coming up in the last week of October.  It should be quite a bullish climax as the herd gets excited about all the money printing that is possible.  Remember, earnings fundamentals don't matter now, it is all about the fundamentals of money.

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