Shorting the market today.

By , February 1, 2013

Right off the top I should caution you all “don’t try this at home”, because I almost always lose money when I trade the short side of the market or an individual equity.

That said, after my post earlier this week about taking some profits off the table in the face of what seems to be overwhelming complacency and confidence in the stock market, the evidence continues to mount.

One comment from “SL” on that post was:

Agree but still feels like we need a blowoff top. Personally I couldn’t take the low vix anymore…bought half a position of SPXU’s yesterday. A touch of FAZ too given the extremely low RSI @24. Daytrader ETFs can work nicely for position trades if you catch the chart just right. Or not.

He (or she) may be right. And today may very well be that blowoff top:


DJIA 13,992.63 +132.05 +0.95%
NASDAQ 3,178.68 +36.55 +1.16%
^NDX 2,764.25 +32.72 +1.20%
^GSPTSE 12,777.29 +92.05 +0.73%
^SPC 1,512.56 +14.45 +0.96%
^VIX 12.75 -1.53 -10.71%

Everybody is euphoric today because the Dow Jones crept over 14,000 and the payroll data was “revised” upward for the prior two months. It really seems silly when you think about it: that government revisions of data that is already heavily manipulated actually has any bearing on reality.

At the end of the day, the complacency is just unbelievable, it’s hard to believe that just over a month ago there was near panic over the equally meaningless “fiscal cliff” debacle, which hasn’t been solved in any real sense anyway.

There is this great essay over on Zeal about this complacency and how they like using the older VXO index over the newer VIX, and that one shows even more cavalier disregard for the risk premiums today.


Another long time favorite of mine, Mike Swanson of (I’ve written about him before frequently) posted this video on Youtube a week ago, entitled “Right Now People Are Getting Too Excited About the Stock Market“, you can watch it below. The overall theme of this video is that where we are right now, is not the place where “new bull markets” emerge from, so piling into the stock market here is probably a high risk / low reward prospect.

He also covers off points of maximum pessimism, like Greece, last summer. Remember, we like maximum pessimism, to get into the long side and we like soaring confidence and complacency to get short, either of which make for  low risk / high reward setups.

Even if we’re wrong, we don’t get mauled too badly but if we’re right, we’re happy.

As I said, I have often lost money trying to short the markets (I usually get the overall trend right but screw up the trade: buying puts too far out of the money, or selling them too soon into the decline), but having said all this,  I had to go out and get short today:

Bought Betapros HVU 2X Volatility ETF

Bought Betapros HQD 2X Nasdaq Bear ETF

Bought Betapros HSD 2X S&P500 Bear ETF

These are double exposure inverse ETFs, so again, I could take losses here if the markets really surge on this confidence, or even if I’m right and they roll over, if that takes too long I could get chewed up with the tracking costs which are characteristic of these synthetic ETFs – even moreso when they are double exposure, thus I’m laying in some fairly tight stops and either I’m right or I’m going to lose a few bucks.

As always do your own due diligence, this is not investment advice and remove cellophane before eating.

Google Analytics Alternative