Falling knives and running with scissors

Many stock charts are breaking down. They sometimes stop and pause at technical support, then when that fails, the bottom falls out. Most are a long way from being a buy from a valuation standpoint. Some industries have a business model that doesn't bank any of the profits from good times, so when times turn bad, there is no cash on hand or liquidation value to the shares.

With each day of consecutive new lows, it becomes increasingly tempting to try and pick a bottom, or conversely to short some shares that have held up. I remind myself that these kind of plays are high risk, and in part due to an itch to get back into the action after a long time on the sidelines. Thus the running with scissors analogy.

I do not see some of the telltale signs of a selling climax such as a rocketing VIX value or a huge volume capitulation day. Even then, there is so much downside momentum right now in many stocks, the safer play looks to be to short any rallies, rather than try and play any bounces.

A few folks are making money even in the tumble down market. A few have the nimbleness to play the short side, and there still remain isolated pockets of strength in so-called defensive sectors such as main stream drug companies. Some of the cyclical industries such as airlines and housing, have seen the bottom fall out, and like I wrote, have no book value to speak of, or a dependable future earnings stream, for value investors to look at.