Mid-week update

The S&P continues to rally.  Yesterday I purchased a bunch of January 2021 puts in IWM (an ETF tracking the Russell 2000).  I’m still convinced that this is a typical bear-market retracement rally – built on the narrative that the coronavirus lockdowns will be relatively short-lived and that the federal reserve money will push us to all new highs.  As of now I can no longer go short in my regular account, I’m down to my retirement accounts which are still sitting in cash.  For that I’ll wait until the S&P 500 tests the 200 day moving average and then I’ll start more bearish bets if I can.

We’re getting fairly close to that point – The S&P 500 is around 2800 now and it will test the 200-day just above 2900.  Until then I’ll be on the sidelines.

By the way, this bear market rally could easily last a few months.  I think we’ll be testing the downside come fall, but no one can predict exactly how these things pan out.  On the one hand, the shutdowns are different in their immediacy – the economic data starts looking horrible right away whereas a normal bear market has some lag while it slowly deteriorates.  That’s why I think we’ll be re-testing the lows in the next 6 months unless a medical game-changer comes out.  On the other hand, the amount of fiscal and monetary stimulus combating this crisis is also unprecedented.  More liquidity means bigger waves, and we could easily see an enormous rally with an enormous crash just like we saw between last August and this March.

If you’re willing to surf these markets you could get the ride of your life, but you could also get wiped out.  Stay safe out there.

About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at gluskinsheff.com. Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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