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First with Financial Comment from Arabia

Global stocks face a Wile E. Coyote moment, go short!

with 4 comments

Many readers around the world will remember the Wile E. Coyote cartoons from their childhood. The pesky Road Runner character always seems to win in the end.

For the Road Runner read the market professionals of Wall Street. And for Wile E. Coyote the majority of investors and the entire general public. So how close is the Coyote to the edge of the precipice right now?

Coyote moment

You could almost ask any professional investment banker and get the same opinion. The 12-month stock market rally is too long and too strong not to undergo a meaningful correction or even a major crash.

One problem is that as the Coyote finds out when you get to a very high place there is only one way to go. Gravity is a force that cannot be resisted.

Markets also act like the mischievous Road Runner and lead investors up the mountain only to watch them drop off the edge of the cliff. The professionals collect their commissions as you buy into the market, and they collect commissions as you sell out.

It is such an old cycle you would have thought that investors would have learned by now. As children we all used to watch the Road Runner lure the dimwitted Coyote to the top of the mountain and shout out warnings at the television.

History repeats

He never paid any attention, or learnt anything, and always fell to the bottom. He always then picked himself up and got ready to do the same thing again.

In real life we are not cartoon characters and those who risk their wealth at the top of a bear market rally will not have their capital returned. It is gone. Only the market professionals and short sellers win out.

After a stock market event there are always stories about a few hedge fund managers who went short just at the right moment. It is a bit like bribing the Road Runner to help you back down the mountain and keeping yourself intact. And actually real life is rather better for the shorts who actually make a lot of money out of crashes.

There are plenty of articles on this website explaining how to go short in ETFs which anybody with an Internet stock market account can do easily. Arabianmoney has been too early in going short. But don’t end up like the Coyote! And certainly do not stop out your shorts now!

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Written by Peter Cooper

March 11, 2010 at 9:02 am

Posted in Banking, US Stocks

4 Responses

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  1. This is pretty good.. Weekend update.

    http://www.shadowtrader.net/videos/sunday100314st_1.html

    Ed Note: A focus on technicals is like arguing over who is to pay for the milk when a bomb is about to drop on your head. Talk of day trading is very much a market top phenomenon. Show me some genuine signs of economic recovery and that would be different. So how does it look for US auto and house sales? This is what really drives the global economy!

    Andy

    March 14, 2010 at 7:48 pm

  2. I am not so sure the idiot Bernanke will ever allow the market to go down. If it starts to sink he will print, see Faber. I think we have to live with a market that is artificially high until the bubble is so obvious that even an idiot will know it is bound to crash. Your advice is seriously premature. Probably right, but timing is way off. I would think 2012 we will see a serious correction.

    Edna R. Rider

    March 14, 2010 at 6:35 am

  3. That $780 Billion USD stimulus package provided this liquidity to the invisible hand that milks this market up on every drop that takes place.

    http://www.ft.com/cms/s/0/e2ee926a-2e40-11df-85c0-00144feabdc0.html

    The surfeit of liquidity provided by central banks, notably the US Federal Reserve, has helped propel the S&P 500 more than 70 per cent higher in the past year, and this week it closed at its highest level since October 2008.

    Andy

    March 13, 2010 at 7:41 am

  4. I guess this is the mother of all manipulations. Here comes 11000 and then 12000. Crazy shit going on these days with these gains. Now we have about 12 out of 13 sessions of straight gains. If this were like this at a casino table one would think it was rigged! I need to head to a roulette table and find one on a roll pulling the same colors on every roll and bet on the same color trend.

    Why fight the trend? I was going to buy some short positions yesterday but was turned off because I had felt the usual manipulation taking place and sure enough before the day ended in New York they manipulated the close into positive territory as usual. Today will probably be no different.

    Ed Note: never get caught without your shorts on.

    Andy

    March 12, 2010 at 10:47 am


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