Jenna, Briefing.com decided to finally agree with your trading philosophy.
Day Trader : Build it up, tear it down. This is the type of price action that has governed both the indices and
individual stocks over the past several months. While good news (positive earnings guidance, analyst
upgrades, deal announcements) have continued to ignite early-session buying deliriums, equities have usually
failed to hold gains into the close. On the days that the market has finished on a positive note, ensuing strength
has been met with aggressive selling. Who's responsible for slaying the rallies? Blame the hedge funds and the
day traders -- which these days are one in the same.... According to a Wall Street Journal article published
yesterday, the average hedge fund returned 9.3% through the end of October. Impressive numbers given that
each of the major indices is in the red in 2000 (Dow -8.3%, S&P 500 -8.2%), led by a 30% decline in the
Nasdaq.
Where are these high-octane funds placing their bets? They're playing the short side baby, and
making their presence felt every day. In fact, shorting equities has become the new momentum theme in the
technology sector. Instead of salivating over the prospect of an upgrade that will carry their already
overextended tech stock to even loftier heights, hedge funds are now viewing an analyst-driven gap up in a
stock as an opportunity to short the specific equity, along with any other names that have rallied in
sympathy.... Traders have also been using the charts as a timing guide for putting on short positions. One of
the most popular formations has been the double top, which is being sold all the way through the retest of gap
support. Test of this level has been an occasion to cover positions. However, shorts are being put back on
immediately following an unsuccessful retest of the support level.... Betting against stocks is not a new
concept, it's just one that has been out of vogue for several yrs. This balanced approach to investing (buying
good stocks, shorting dogs) has consistently made the hedge funds outperformers in down markets and
stand-outs in moderately uptrending markets. But until recently, playing the short side was a game that offered
far more risk than reward, with the opportunity cost of not being long the bull market making the short-side
that less alluring.... Combination of bloated valuations, ever-expanding floats and uncommitted longs has made
the short-side an attractive place to be again. While shorting stocks clearly is not for everyone, understanding
the dynamics of the short play is necessary to be a competent long. -- Damon Southward Briefing.com |
