First of all, the amount of shorts is a pimple on the ass of this market. The vast majority of the market is long (and always will be). The short-term speculators (ie. Hedge funds, day-traders, swing traders, etc.) are just also rans when it comes to what really moves this market. The market moves based upon the activity of Mutual Funds, Pension Funds, 401K activity, etc. and de facto the investing public at large (mom & pop). If they start selling (or stop buying), the amount of shorts in the market will be totally insignificant. The short-term shorts are significant only to the extent that the moves do not elicit any real investor moves. Personally, I acknowledged from day 1 that I am fighting the intermediate trend (defined as the last 12 months or so). However, I believe that last year (and the beginning of this year) was a counter-trend move in a larger bear market which started in Spring 2000. As for reasons, anyone looking for 'legitimate reasons' is not a trader. Good trading is often an artistic endeavor and based upon experience and a mental connection with the pulse of the market. I felt that we experienced somewhat of a 'blow-off' top 3 days ago given the speed and pace of the move (intuition and gut feeling) and hence I felt a lot of shorts had capitulated. It was a gut reaction to my read of the market. Would I have covered quickly if I was wrong? Yes. Would I have tried again at some later date? Probably. Now that I got confirmation, I have added to my shorts. Am I married to it? No. But, as long as it is confirming my position, I add. If it goes against me leading me to believe that 'real money' is not going to sell, will I take profits/cut losses? In a heartbeat. The key question is how are real investors going to react. I don't think they will be as stupid as they were in 2000. However, someone once said that nobody ever went broke overestimating the stupidity of the public at large.
. Any feelings as to which months are the best to go short?