Dortmunder uncharacteristically motioned me to sit at the counter in the big kitchen. I did as he asked. I sat.
"This morning it would be most prudent to discuss what's been occuring in the market for the past two to three months. Perhaps by understanding where we've been we shall have a better idea of where we may be going."
"You make sense" I retorted to the master-trader with the 197 IQ.
"Tell me what you have observed" he demanded.
"Well, two months or so ago we were at NASDAQ 5,000 and it was agreed by most that we'd see NASDAQ 6,000. The analysts were popping up on CNBC telling us why; and talking effusively about one stock after another. Then the NASDAQ started to sell off, and pretty soon it was a rout."
"Quite" he said. "And when the NASDAQ was at 5,000 what were you seeing on your charts?"
"Gee Dortmunder, that was the problem. Despite all the great things being said on CNBC, chart after chart continued to be topping out. Up-Trend lines were starting to topple faster than the Maginot-Line. Internets and biotechs seemed especially week."
"Good" he said. "Continue."
"Many stocks continued to drop. Support levels provided no support. Wasn't this when we decided to go short? It went rather well I thought."
"We shall leave our successes out of this discussion" he retorted sharply.
"Of course, of course" I said.
"Did you worry about your short positions?" he asked.
"Yes, I always worry." I replied.
"Good. Do you think other traders, investors, hedge-fund managers and the 9,000 other fund managers were worried?"
I thought about this for a moment. "Sure, they were using other people's money"...then I said "If I worry with my meager capital, they must worry a lot. About the money they're losing, about their reputations, about their jobs, how they're gonna pay the monthly bills and the mortgages on their very expensive homes.
"Indeed." he said once more. He's a great "indeeder."
"So...where's the market going, and how shall profits be made?" he asked.
"Gee Dortmunder, there's so many things to consider. Will the FED bump up rates 25 or 50 basis points? Will they wait for the FOMC meeting on May 16 or do it sooner? Will the interest rates continue up? Is Mr. Greenspan so worried about inflation that he'll raise rates again and again and again? And how will this affect the market? And it's an election year, and he owes Bill Clinton and the Democrats for reappointing him well ahead of schedule. What if investors begin to back off and slow down sending their money into the funds? What if investors want some redemptions? Will the funds be forced to sell stocks? I gotta tell you Dortmunder, I've never been so confused."
"Quite" he said.
"So what will you do? I have a lotta respect for you."
"I have no idea where the market will go...though I suspect there's a long way down. My best guess? Trade carefully, trade in small amounts, always place stops whenever you enter a trade...always. And be very careful of rallies. You can get hurt in a sharp rally within a bear market in a very short period of time. But...watch volume carefully and until you observe massive volume, you might want to go short when you see strength and cover when you see weakness. Above all, STAY IN BUSINESS, be patient, wait for bottoms to form which may take many months."
"That's it?" I asked.
"Yes, that is it...for the time being. We shall talk again when it is appropriate."
"Thank you Dortmunder" I said.
"Here, have a scone." I took one. (Lee)
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