Freefall on the Anniversary

Shawn Baldwin from CMG in Chicago discusses capital management and the capital markets

Freefall on the Anniversary
 
Market Commentary October 10th, 2008
 
The term "irony" almost doesn't seem to apply to the latest historical plunge in the continuing saga of the wildest market ever, so I guess that it was only befitting that on the anniversary of the markets greatest high we suffered another almost 700 point loss. That freefall brought us back to post Dot Com bubble range when the IPO Market was just starting to pick back up again in 2003.
 
The panic continued to Japan which saw the worst drop since 1987 and an
unlisted insurance company, Yamato Life Insurance file for bankruptcy while the government is scrambling to prop up institutions. I expect the fear to continue through Europe at the open as well. In this market I can only advocate to continue to short so much (you can be vilified and burned in effigy in the States for being a short now)—that has been my battle cry since September 24th (a number of my cohorts from Oxford thought that this is the only battle cry that I have ;-)
however it has been the prudent thing to do as a wide scale momentum trade given the market fundamentals and climate of fear BUT-this market is clearly oversold. The lack of buyers is due to pure, unadulterated fear. This is causing the market to be completely over sold as the non functioning commercial paper market and inter-bank lending have had an indefinite hiatus...there will undoubtedly be a large number of people who think that they are clever after watching the landslide and try to join the action since the shorting ban has been lifted. The sophisticated investors and well capitalized hedge funds will then come back into the market and you will be able to expect a 10% gain in one day. The less iron willed investors will fold in the face of the short squeeze. I guarantee it.
 
Monitor the Vixx and keep a close eye on short interest—these novice guys won't. If you have the stomach for it begin to accumulate ETF's-they will have to do well and I can explain it in 4 words: advisors/baby boomers/retirements.
 
Stocks like Apple and Google have been sold because of emotions and not
fundamentals and they will ROAR back—accumulate both for 6 months to 1 year range. I never to attempt to call a bottom or top—I trade momentum and direction—I would suggest that you do the same in a market as volatile as this or sit on your positions and wait a year before you look at them again. Market technicals will fail you in this environment. I will not belabor the factors causing market pressure—I have done that too many times and if anyone needs them, reference back to the investment thesis from September 24th when I called the 1st crash on September 30th—the opportunity now is to catch the
upside when the people crowding the short trade are forced to make a hard decision.
 
There will be a 10 point day and the Vixx and short interest will tell us when. Pay close attention to your positions all day because that rally will most likely be in the early morning to early afternoon and then the market
will be sold off before the close. You see, even professionals don't want to hold positions overnight. Sorry!
 

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