Friday, February 27, 2009

More Downside Potential, But Staying Short Getting Risky; Feb. 27, 2009

The long awaiting target on the S&P at 741 has finally been reached. I've been pounding the table on this number for months it seems, and now it's finally been broken and closed beneath. However, the bear phase is coming to an end. Pessimism is so extreme that the room to the downside should be quite limited, and the risk of a huge fast and ferocious multi-month rally is just around the corner. Remaining short with no protection is not wise in my view because the risk is way too high and the additional potential for further losses is minimal.

I covered half of my half short position at the lows on the day (rare) but still have some Nasdaq shorts left because I still feel that the Nasdaqs will break their 2008 lows as well. I still have my call options in full strength and am situated to either make a small profit if the market rallies strong, or make a big profit if the market continues to fall.

The next big opportunities will be shorting gold and silver, and waiting to get long the stock market.

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