Prepping For The Downside

The more sophisticated market participants work the downside.  That’s where the biggest (and fastest) money is made.

shutterstock_242289160Trading books and specifically Reminisces of a Stock Operator, (first published in 1923) detail how the wealthiest traders in the world prefer downside action.

The markets are now stretched to obscene levels and could go higher, still.

Just this past week, we have interest rates breaking out to the up-side, a-la August, 1987.

Being long anything other than corn or wheat and the occasional down-trodden coal miner,  seems to be a high risk plan (not a recommendation).

Positioning for the downside in the appropriate market, might be a lower risk option than riding the insanity to the top … wherever that is.

Which brings us to inverse biotech fund, BIS.  The daily chart shows the well-heeled know something’s up.

2020-08-30_9-32-52-IBB-Daily-5-bar-lanscape-notesSpeculative volume for potential downside in biotech is increasing.  Last Friday’s volume in BIS was the highest in nearly four years.

BIS was trading higher throughout the entire session until the last few minutes.  It closed slightly lower for the day and thus colored the volume bar red.

That minor BIS downturn (up turn in IBB) can be traced directly to Amgen (AMGN) which is now part of the Dow 30, effective Monday the 31st.

It’s important to note that for the past four months, volume activity in IBB has remained relatively unchanged.  Not so with BIS.

We’re nearing the Labor Day Weekend during the next sessions.  The market will be closed on Monday, September 7th.

Back in the day of 1929, the market made its all time high on September 3rd, the Tuesday after the Labor Day Weekend.


Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

September, 1929

The stock market peaked on September 3rd, 1929, the Tuesday after the Labor Day weekend.

Labor Day for 2020, is Monday, September 7th

The bond market has posted a double top and reversed.  Rates are moving up.

Now, the stock market is stretched, extended and rates are rising; similar to August 1987.

Antique-Ticker-borderThe problem is, it’s similar by an order of magnitude or more.

Remember in the most recent downturn, there were trading halts, brokerage server blow-ups and customer accounts going completely off-line.

In that situation, if someone is long and expecting to beat the herd on the way out, good luck.

The firm sponsoring these updates and analysis stopped trading the (equity) long side of the market years ago; recognizing at any moment, the entire system could break-down with any open positions effectively locked.

If there’s another large break with orders, positions, accounts ‘trapped’, for hours or possibly days; who wants to be on the long side of the market?