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Time To Go Long, For A Short Time?

by: Larry MacDonald October 06, 2008 | about stocks: HXU / SSO    
Larry MacDonald

Larry MacDonald

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The violent sell-off in stock markets Monday morning, along with the stream of bad economic news of last week, is bound to provoke substantial cuts in short-term interest rates by the Federal Reserve and other central banks. Stock markets should thus be near a good rebound, especially given near-term oversold conditions.

If you went into those double-short ETFs last week, take the 10% to 25% gains so far and shift into the double-long ETFs. There is a list at Stock-Encyclopedia.com. I myself bought the Horizons BetaPro S&P/TSX 60 Bull Plus ETF (HXU) and the ProShares Ultra S&P500 ETF (SSO) – or should the symbol be SOS now?). It could be early and the double-long ETFs could come down fast, but they can come back fast too.

If and when the rally comes, it may be short-lived as attention shifts back to the worsening economic indicators parading through the headlines. So one could don their trader’s hat … or consider buying and holding since it’s hard to imagine stocks staying below this level over the next year to three years. Moreover, the Fed and politicians will likely have a number of other counterpunches lined up after the first rate cut.

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This article has 11 comments:

  •  
    Oct 06 07:25 PM
    I suppose there is something to a dead cat bounce and the market might pop short term. But in my opinion interest rates are low enough and dropping them further will not solve the problem...the problem is fundamental in nature and cannot be solved without job generation and significantly lower energy costs. M1 has to start moving positively and what you should ask for is a bounce for M1 instead of the stock market.
    Reply
  •  
    Oct 06 07:46 PM
    "it’s hard to imagine stocks staying below this level over the next year to three years".

    I don't know. Who would have imagined 10 years ago that an investor would have been fortunate to be a break-even on his Vanguard 500 Index fund in the next 10?

    Can anybody ever think the unthinkable?
    Reply
  •  
    Oct 06 08:22 PM
    Now is the time to buy. All those people on the sidelines in cash will miss out and be shocked how fast the bounce back will be after the election.
    Low interest rates, less competition, lower raw material costs = increased company profits = higher share price.
    Reply
  •  
    Oct 06 08:43 PM
    I agree that It is "hard to imagine stocks staying at this level over the next year to three years".

    In six months, we'll be looking at these levels and wishing we had sold. The Dow is headed to 8300 - if we're lucky.
    Reply
  •  
    Oct 06 09:11 PM
    You bull market geniuses need to study your history and learn. No matter what the salesmen tell you, stocks don't grow to the sky. It took 50 years for the Dow to recover from the Crash (after adjusting for inflation). It's precisely because of you'al that the bubble came about and is now in for a long term reckoning. We'll probably bring back the same regs that the robber baron republicans said we needed to do away with. There is nothing new under the sun.
    Reply
  •  
    Oct 06 09:34 PM
    I expect much of the same thing, but probably a little less willing to use double longs or shorts at this juncture. While we are clearly in a sour bear market and negative news is hitting us aside the face almost everyday, the Fed with all of its new powers has carte blanche to change the rules of the game in an instant. I fully expect they will soon. This Fed makes Greenspan's Fed look like Kid's play. They're trying things Greenspan could never have dreamed up. Double longs and shorts leave no room for error.
    Then again, if one doesn't want to run with the big dogs, get off the porch.
    Reply
  •  
    Oct 06 10:06 PM
    A very short term dead cat bounce is likely, but why would you go double-long (with derivative ETF's) until there is some rally that can be confirmed? You are not following the market - you are predicting the market, which you cannot do, and certainly the typical investor can't do it. Buy into the bounce when you see the bounce.
    Reply
  •  
    Oct 07 12:39 AM
    I think the rates will stay the same. I think the goal is to suck all the life out of the emerging economy's so that commodities do not rise as rates are cut. The economy would be fine if not for the emerging economy's growing like wildfire. That lead to commodity inflation. I got into this market Friday after sitting out. To me its a happy entry point. I can't see anything dramatically lower in the next 6 weeks. My fear is a double bottom usually 52-64 days after today.
    Reply
  •  
    Oct 07 09:00 AM
    Ever notice what happens to the price of gold as America sleeps?? The Giant roars to life, only to be manipulated in the morning by the sun reaching the Statue of so called Liberty...
    The writing is on the wall, the dominos are falling and fiat money is imploding, despite our goverments best efforts to manipulate and print away the evidence.
    Gold is at 888 this morning...who knows where it will end up today with all the manipulation going on. In the end, the dust finally settles, which is why we are in this mess. Gold will rise, because "the full faith of the US government" doesn't mean squat anymore and the rest of the world knows it.
    Reply
  •  
    Oct 07 10:28 PM
    sounds like we will be protecting our veggie gardens with shotguns
    very soon !
    Reply
  •  
    Oct 12 10:36 AM
    Yes, certainly too early to buy on Oct. 6, 2008. Unless you're in it for at least 5 years, you probably got out with massive losses.
    Reply
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