Sometimes the rally witnessed in a bear market can really be convincing that the bottom is in and time to go long equities once again. However, fundamentals are decaying around us on a daily basis. News media cannot stop predicting the bottom and investors touting things like the January effect etc. lead me to believe there has not been enough "blood letting" so to speak to have reached the bottom. If the bottom were truly in, I would expect to hear much different tales from the media.
So how does one keep their assets intact? If we stay out of the market, we get "ZERO" yield (anyone notice this yesterday on the t-bills?) if we stay in the market we will get whipsawed even if we are right on the markets continued slide we cannot hold out with the rally we are witnessing. So what is an investor or trader to do?
If you do not like my approach of buying long puts and selling short puts against the long thereby smoothing out the swings, then you can be an aggressive trader and get long on the rallies expecting full well to have sharp drops for which you will need to be short then once again long etc. Problem with this is 1) you need to be in front of a computer during trading hours and 2)You need to be good at timing.
If you want to trade the latter way, then make sure for sake of your sanity to have tight stops in place.
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2 comments:
Dell,
What about this commodity rally?
Commodity prices should follow the deflation trend. Going down.
But...there will come a time soon where we will once again jump on the commodity train. I think this is just a reaction to the markets rally. I am not always right so watch and see if we need to move sooner.
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