Tim Reazor
Chief Investment Strategist
NorAm Asset Management
Continuing on the theme of not writing about what is obvious this week I want to talk about why you shouldn’t short the market here.
If you listen to the Wall Street Shuffle Radio Program, read my newsletter regularly or hear me do daily market updates on The Dan Cofall Radio Show you that I often say that this is not the time to get short. So this begs the question…. When is the time to get short?
In markets like this one it’s tough. The QQQ’s hit a recent high of 91.36 – we closed today at 85.55. The SPY hit a recent high of 189.74. We’re currently trading at 184.34. We’re not too far off the highs and the media is picking up on the story that the market may be breaking down. This puts in prime territory for a relief rally.
A relief rally is when markets rebound because there is no one else to sell to – it’s too obvious a trade that typically sucks in individual investors. Most folks get short at the wrong moment – so tomorrow or in the near future markets will start to rally higher – not too much – think to their 34 and 21 period exponential moving averages or 50-day simple moving averages. As you see this some folks will want to get long their favorite stocks – this dries up supply. Some of you who got short the market will start to feel the heat – you shorted “XYZ” stock and it’s reversing higher. Every tick higher is more pain to your bottom line. You can’t take it anymore – you capitulate – you throw yourself to the stock market gods and beg for mercy.
Mercy will only come to you when you cover your short position – i.e. buy it back. This action makes it worse for other shorts… you just bought back your position and dried up some supply of the stock. You along with the folks who are getting long and now other short covers are continually drying up supply – add in the increase demand and boom – price goes higher.
How high? Most likely to the 34-period and 21period EMAs and to the 50-day SMA. It’s at this point if there is no continuation above this moving averages that you should then short.
If this volatility is too much too much or you’re not performing as well as you know you can – contact us here at Noram Asset Management – we can help. If you qualify for options trading give us a call. We have strategies for every market environment that can help you earn weekly income while the markets look for a definitive direction.
Contact me at Tim.Reazor@NoramAsset.com or 855.Real.Wealth – follow me on Twitter. I’m often talking markets and stocks – my handle is @TJReazor
Best Regards,
Tim
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