Sunday, May 05, 2013

Worst feeling, short in an up market

One of the worst feelings is to be short stocks when the market is moving up strong. At this week's ThinkorSwim recap, one of the participants was short and losing. Most folks assume that a person involved in the stock market makes money when the market moves up. So it becomes ever more awkward when making casual conversation and saying nothing or trying to explain why it isn't working out.

That said, I am not short, I am still net long. The other possible subject line was "Sitting out the Dance." I did open one tiny position for June in LGF, but for now, that is it for June. Like most hedgers, I am lagging behind the stock indices in terms of performance for 2013. I have a list, and will continue to consider some low risk, low reward positions. The stock market feels so weird, I don't see it as a time to be aggressive, long or short. The call buyers have done very well lately, but it hard to say when the rug will be pulled from them. Same with bonds and gold, the markets feel so weird, it is not a time to be aggressive long or short.

Meanwhile, in Omaha, Berkshire is having its annual shareholder weekend. Some describe it as a Woodstock for stock market geeks. I've never been. Here is a link to the Wall Street Journal's blog about the questions segment: link

I know some of the readers are interested in gold and silver. For now, short feels like the percentage play. Buyers of physical silver may need a huge rally just to get break even. I remember buying some 90% when silver was around $32, and paying 22x and 23x. It is tough to find 90% at 19x or 20x, which is about where dealers will buy it, if and when silver goes back to $32. This is not a good percentage play, no matter what emotion is involved. The exception is for those that can get the dealer's side of the spread. Dealers tend to win as long as the game keeps going.

As always, I prefer to move slowly into stable markets. Fast markets are not my friend. During fast markets spreads widen and small fish get gobbled up by the bigger fish with staying power. The small fish are often best off seeking shelter to avoid being the food. For the slow moving traders like me, sometimes the smart move is to sit tight. I'll leave the magician's tricks and heroics for the more nimble.

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