"Albeit not a LIKELY scenario and like you say a "very low probability (2.3%)", but you have NO accounting for this possible occurance that WOULD instantly wipe out any account."
Please explain upon what basis you draw this conclusion. Assuming the RUT does mark 710 and trigger my stop loss, explain how a mark-to-market at 710 would "wipe out any account".
Maybe because a stop loss is not guaranteed in a fast market with heavy volume?
That would still fail to explain how it would “wipe out the account” - even with market slippage, the index would have to move considerably in order to wipe out the account.
Note that I was hoping to hear from Gilbert, since he’s the one who made the original statement. I’d rather not apply conjecture to what he actually meant or why he meant it.
@Lew,
Here is a possible market scenario:
Reality…
Friday, 20-Jul-2007 RUT close: 836.44
Friday, 27-Jul-2007 RUT close 777.83
Friday, 03-Aug-2007 RUT close 755.42
Friday, 10-Aug-2007 RUT close 788.78
(Example)
Thursday, 16-Aug-2007 RUT close: 715.03
Pre-Market Friday, 17-Aug-2007 futures pointing sharply lower.
Market gaps lower…
You asked how it could happen - although NOT likely, definitely a strategy consideration!
17-Aug-2007, RUT open: 695.45
Stop loss target is not triggered max loss on position:
710 - 700 = 10 (less .30 credit spread) is 9.7
9.7 x 100 contracts (10,000) = ($97,000)
Account value: $3,000 (± previous gain/loss)
Gilbert
Can we get this forum back on topic of discussing the market bottom and direction?
Thanks,
Craig
Glad to Craig,
IMHO we are not there (market bottom), yet.
Seems many hoped and indeed seemed “right” that this was an ever so temporal a pullback.
I look at how reactive (re:nervous) the market has been to news. One day it’s rosy the next a hedge fund blows up and it is panic time.
All one has to do is take a look at past “corrections” [defined as a 10%+ drop from a major index - SPX/DJIA/Nasdaq]. The Vix (also Vxn) or Volatility Index tells part of the story. Extreme levels of 'fear" or jumps from this gauge have most often coincided with sharp drawdowns from the benchmark indices.
Take a look at last summer also look at March 07 and lastly, now. We are still seeing new highs - as recent as last Friday! This will take a while to settle (not overnight) and the bottom won’t come until then.
I don’t try to predict the market’s direction, I simply follow along. When heavy accumulation - see price and volume strongly surge - by institutional investors off a “bottom” this GREATLY increases the chances of a new rally to begin.
Until this happens “traders” will be profiting from the volatility or strong, yet temporal moves in either direction using various instruments.
This coming week IS likely to be EXTREMELY jumpy and it is VERY LIKELY to have a sharp downward bias (at least that is my $.02).
Key things I will be watching: indexes taking out recent lows and quick moves to the next (lower) support level in/with heavy trade/fear factor jumps. I will be playing this with WOTM (way-out-the-money) index spread trades to take advantage of the high premiums due to recent volatility.
Or we may get a confirmation from the S&P 500 or Nasdaq that may signal the start of the next leg to this bull market.
Anyone notice that there is even talk of this credit crunch stuff possibly leading us into a (I know I am going to say the “R” word) recession? Just shows how serious things really are. But perhaps not as serious to derail our economy.
Gilbert
In general to all:
I don’t know how this market continues to find itself “propped” up. I know not too many vendors even want to see a retracement/consolidation or admit that we are in a correction, but even if you are new to investing and simply have not experienced what a down market feels like - by simply pulling up past index charts you can see for yourself why we may not have even begun to see the lows (i.e. 15% retracements).
Cash infusions from Central Banks are usually temporal (remember Japan?) and markets usually are equally “frothy” on the upside as they are gut-wrenching on the downside. We’ve lately often seen late-day reversals (program trading) orchestrated by MM (institutions)! They still don’t want to see this thing go down! Perhaps still trying to recoup losses from getting caught off guard from initial sudden drop? (speculation)
And yes I am making money or capitalizing as this market forges lower (up 17% from highest drawdown) - but when small caps (see Steve’s fund: Diversified 40), and large caps (see GOOG fund or Raystonn?) are taking heavy losses along with the major averages we quite likely are going to see more weakness.
But alas…we have already corrected 6-8%! (I know, down 3% from the SPX seemed too much.) Couldn’t we just now go back into :)$$$:) mode (happy-happy dollar mode)?? I know what it feels like to see every growth investment tank and recouping losses isn’t that easy (why cash is king).
We shall see, however in the meantime it seems bears (ie. short-sellers/hedge funds) still cannot have their day. Once we do get a healthy consolidation (correction), the next strong leg to this bull market can benefit many managers with heady 50%+ gains in just months. (see Aug 2006 to Jul 2007)
Only the nimblest (experienced) of C2 vendors can trade through a 15% decline from the SPX, Nasdaq or Dow and still look good over a 2+ year period. Some (most) of the top 5-10 have been hit (thus far) with 15% declines - and many 20%+ in DD! One can only imagine what can happen - God forbid - we see a “normal” correction.
Don’t get me wrong - I am not a “naysayer” hoping for doom and gloom for all. I just know I can’t make money very easily at the top end of a heady market. This is a late-stage bull market, right?
I apologize for being wordy…just my $.02 (ok I took $.09 lol) regarding Market Direction.
Gilbert
…back to what matters (at this point, perhaps no one is interested),
I know they are wordy, but accurate. You can read my posts at my thread. Brief is better?
When the market fell into a correction last week, the damage was initially limited to lesser-quality stocks, with just a few leaders showing significant signs of damage. The broad indexes held above their 200-day averages.
But the rapid selling of the past few days has caused the damage to spread. Several top-rated stocks have flashed multiple down days in rapid trade.
The Nasdaq sliced through its 200-day moving average.
Among the major NYSE gauges, only the Dow has held above its 200-day line, and just barely.
As we sit through a market correction, patience is needed to wait while stocks build new bases lasting a couple months or more.
Up 25% from my lows, WOTM index spread trades have been beneficial these past few weeks. Perhaps more of this is par until we begin again to write covered calls.
@Lew:
Your trade may very well fare well with expiration in just 2 days. But as you saw with the quick drop to the next level in the last 2 hours of trade and with some indexes now in negative territory for the year - pulling below March lows, the RUT can lop off 25 points in a heartbeat.
It’s gone quiet, I’m on ignore (prob from those few), who cares. It is still obvious, when it comes to stocks Market Direction does matter most.
Gilbert
