Russel 2000 might start to crack because of fiscal cliff

Quote from luisHK:

You're positive about that ? Intraday the market has been *very* strong since beginning of january. I'm glad I made some money leveraged on the long side, including a significant amount of small caps, beginning of the year because the bearish bias I had in the following couple of weeks essentially amounted to losses. Now the debt ceiling stress has been put off a couple of month, and i'll be very wary on the short side as long as we are in seasonally strong months.

Besides shorting IWM into new year is pretty risky. I read recently how Mc Millan in the nineties noted that overperformance of short caps over big caps at the beginning of the year was already widely publicised, yet still consistently materialised, and almost 20 years later it still looks as much of a reality.

FWIW I'm still short some big caps and EEM, and should remain so for a few days, but I might slip back on the bull cap before end of January.
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So far my prediction on IWM has been wrong. That is all I can say but I still want to stick with my prediction. The most optimistic analysts are predicting 12% to 15% for the market in 2013. So far in just less than 3 weeks we are up 5%.
 
Quote from hajimow:

So far my prediction on IWM has been wrong. That is all I can say but I still want to stick with my prediction. The most optimistic analysts are predicting 12% to 15% for the market in 2013. So far in just less than 3 weeks we are up 5%.
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You are a trader, right? What difference does it make where analysts are predicting the markets will be at the end of December? The market can do an immeasurable number of things between 5% and 12-15%.

I might ask where do you consider your trade idea to be invalidated? Predictions are great and all, but what is the trading plan?

I can assure you that having a bias like this, without a plan, will only cause pain of some form sooner or later. I am speaking from experience.

If you are using such a small amount of your capital that it doesn't cause any pain to be arbitrarily incorrect on such a trade, I would recommend switching to long term investing strategies instead of trading. And this would likely not involve shorting US market indexes in the (very) long term. :) (Just my opinion)

Others reading your idea will surely be working under a different risk profile than you are, and having such a bias without a strategy to recognize when the idea is invalidated could be very detrimental to one's account.
 
Quote from murrica:

You are a trader, right? What difference does it make where analysts are predicting the markets will be at the end of December? The market can do an immeasurable number of things between 5% and 12-15%.

I might ask where do you consider your trade idea to be invalidated? Predictions are great and all, but what is the trading plan?

I can assure you that having a bias like this, without a plan, will only cause pain of some form sooner or later. I am speaking from experience.

If you are using such a small amount of your capital that it doesn't cause any pain to be arbitrarily incorrect on such a trade, I would recommend switching to long term investing strategies instead of trading. And this would likely not involve shorting US market indexes in the (very) long term. :) (Just my opinion)

Others reading your idea will surely be working under a different risk profile than you are, and having such a bias without a strategy to recognize when the idea is invalidated could be very detrimental to one's account.
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Thanks for the solid response. I wholeheartedly agree with you. Specially with your last statement.
 
Quote from hajimow:

Thanks for the solid response. I wholeheartedly agree with you. Specially with your last statement.
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You are welcome.

Just curious if you are still bearish on small caps in the short term. And, if so, do you have a stop loss level?
 
Quote from murrica:

You are welcome.

Just curious if you are still bearish on small caps in the short term. And, if so, do you have a stop loss level?
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Yes I am bearish on the market. I think it is overbought. When I want to short IWM or any other stock, I usually sell out of the money PUTs and Calls and if it rallies and I get short because of my Calls, I start to sell covered PUTs and the story goes on.
 
Quote from luisHK:

What about if the market sells off first ?
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Lets say I sell IWM at 89. If I can take profit in 2 days, I am fine but if I feel it is going against me, I sell weekly covered PUT (in this case for 87. Then if it goes down, well I make money. If it keeps going up, I also sell next weeks 88 PUT. Remember you can sell more PUT than your short position because of Delta but you should be careful not to be burnt in the other direction (market goes down as you predicted and then you cover your short because of PUT and then end up being long because of more PUTs that you sold which is not what you wanted). You sell a strike price that has a relatively juicy premium but not that close that the shares get assigned.
If you have sold out of the money PUT and Calls and the market sells off and your PUTs get assigned (say at 87), then you sell 87 Call or 86 call for next week so you can get rid of the shares in a week with profit.

Warnings: I know shit always happen. The trick is to start slowly and always think of ways to repair your position. Either close it with loss or repair it. Don't leave it because you are down and desparate.
 
Quote from hajimow:

http://www.marketwatch.com/story/imf-lowers-global-growth-forecast-2013-01-23

Read it carefully. These words are not from an analyst. It is from IMF. Europe economy will contract in 2013. The effect will spill over US economy too. Usaully these kind of news affect the market big time in 2-3 weeks. These will be great execuse for sell off after the recent market rally.
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You remind me of GrandSuperCycle with all these short calls. The only thing missing are the "Wile E. Coyote" cliff charts he used to put up.
 
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