The Week of Reckoning

I had some market index shorts in the form of S&P puts open since the last few weeks as mentioned before in this blog. I had anticipated the market fall and the strategy worked out well. While my long portfolio was water tortured by Mother Market, thankfully due to the shorts, I didn't fall off the cliff. I will be covering my shorts this week. So that you know. My theory is - although the bloodbath has continued, the final reckoning I am awaiting for should happen this week. Expect major spikes in VIX and/or a panic sell-off this week. There is no other way except for this grand climax. Just in case it doesn't happen due to some stupid reason like interventions, I want to book my profits while I am still very sure about my shorts. Besides, the level of speculation would increase to a degree that would be too uncomfortable for me to continue betting on the short side until the indicators become slightly less oversold or we continue on the next leg down. For now though, I am going in for the kill and I will be ready on the other side.

The google trends indicator mentioned couple of posts ago in combination with the VIX study and other indicators reflecting institutional participation or lack thereof, worked out really well allowing me to not to sway with the talking heads who have been calling a bottom since the last twenty sessions. Yeah..same sessions marking the market's continued obscene decline.

A great post from Dr Bret Steenbarger published today resonated with me. Dr Steenbarger surmises that by tracking certain sectors' ETFs you can get a good idea of whether the market is in a recessionary/risk-averse mode or recovery mode. The former would pursuade the participants to move to defensive stocks like consumer staples. The latter would encourage the participants to move to stocks that have been battered off late such as financial stocks. If my theory about the week of reckoning is correct, then in addition to watching for a panic sell off, I like Doc's idea to study the sectors to understand if we have truly come on the other side. If so, I may be interested in getting long some of the financial stocks later this week or early next week.

Good luck
Krish Rathi