Dance with bipolar

Bipolar disorders have “mood episodes” that are drastic changes from a person’s typical mood, behavior, and energy.  Mood episodes can be manic, depressive, or mixed. A manic episode consists of experiencing manic (extremely hype) symptoms for at least a week. In mixed episodes, patients experience a manic episode and a major depressive episode at the same time.

This is the medical definition for bipolar disorder. Of course I’m not here to teach anything medical. But anything you are seeing now is very similar to bipolar? Correct, the stock market! It can shoot up very high for a few days or a week to make everyone happy and euphoric like today and then suddenly it become extremely depressing by dropping hundreds of points (for Dow) to turn traders into an icy mood. This kind of gyration of moods can drive most of the traders crazy. Indeed, it is very difficult to make sense what the market wants to do at the moment. Unless you are good at deciphering the market intrinsic code that can tell you what’s its most likely next move (like you ready my blogs here ☺), you will be totally lost by simply following it. So what’s the best strategy to dance with the bipolar? There are three:

• Just sit on the sidelines and hold cash. For most people probably this is the best way when the market is in the bipolar mood.
• Read my blogs to go a step ahead but of course there is no guarantee!☺☺
• Short something that will likely do poorly in good or bad market. This is probably the most practical way to dance with the bipolar market for most active traders. Let me give you one idea as a starter.

You probably have heard and visited Bed and Both (BBBY). I don’t think I need to do a lot of explanation to convince you that this is dwindling business that will likely continue to worsen over time. For any good business that can last long, it either has a great brand that everyone loves even for higher prices or it sells something with pricing competitiveness. But for BBBY, it has neither of them.  It charges more for the products you can easily get elsewhere, especially online. I have been long wondering how BBBY can still survive in this increasingly competitive market where it has virtually no any advantage! Almost by any metrics for a retailer, it is among those that are going down and sinking. In my area, BBBY is just sitting beside the used-to-be famous toy store (R’US) that is already bankrupted. I think it is just a matter of time when BBBY will declare bankruptcy probably not in a very remote future. With this in mind, I think it is a safe bet to short BBBY that will likely do well regardless how the marketing is doing in the next few months. The less risky way to short it is to buy long dated out of money puts that will not cost you too much but will reward you greatly if indeed BBBY goes under in the near future.

Think out of the box when dancing with bipolar!