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Friday, April 11, 2014

What's now?

Exactly following my own script, I got my orders filled when the market went down initially after opening the next day (Tuesday), but it shot up sharply later of the day. My call options for SSO went up 65% within one day. I wish I had closed and taken my profits immediately. Unfortunately I didn't get the chance to do so and the market came down dramatically in the following 3 days. I'm under the water at the moment but I have a strong gut feeling that the market has reached or at least very close to its short-term bottom. Likely in the next 2 weeks, it will come back and make a big jump up. You can feel some capitulation today, which is often the feeling at the bottom.

Having said that, I do feel that the market has changed its pattern lately and may very likely experience some significant correction in the next few months. For many years it is the first time that S&P 500 curve has shown lower lows and lower highs. This may be the start of a downward trend. I bet most of you, if not all, have not noticed that the 30 years government bond yield has come down quite a lot, below 3.5% today. This is potentially a big warning sign and it may go down much more, which means the bond price will go up sharply. Usually the stock market will go the opposite direction against the bond market. If you have a lot of speculative stocks, it may be a good idea to take the opportunity of short-term bouncing up to unload some of them. You will need a lot of cash if the market indeed corrects and buy when everyone runs.

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