Thursday, September 18, 2008

Central bankers rescue the market yet again

Sinking my bum onto the sofa, CNBC blasting away on TV, today i choose my battle ground in the living room. All i am interested from the news now is facts and not opinons from analysts or gurus. If you realise, non of them saw AIG or Lehman coming.....As a trader, it is our job to observe how the market is reacting to the facts and that is how we formulate trading ideas. This will ensure we will be in control when chaos breakout. Remember i was liquidating my short positions as the market head lower to avoid risk as i see the probability of a rebound higher than going lower. Look, unlike a bull market, when the market tanks too fast too furious, there is always a risk of government intervention. While they can let the market rise all it wants, but when it comes to going down, they are not going to sit aside and do nothing. Just like how Fed had to save AIG and giving up Lehman. A shortist's nightmare is when strong hands come in and squeeze the air out of them!

This is the second time central bankers pump in money to stabilise financial markets. It only goes to show how bad the situation is. It is already one year and we are just as bad if not worse off as compared to one year ago when this subprime mess first headlined. Back to my covered shorts before the crash, if i have another chance with the same situation, i probably do the same. My profit target had reached, i had to adjust my exposure. Although all along my analysis is we are going down, but i never saw this big crash coming to be honest. Question now is, what to do going forward? I know exactly where i am going to short again.... i also know what to look out for if this is a bottom and exactly where i will long. Remember my ang mo shifu said, "Ask not where the market is heading but what are you going to do when the market gets there". So do i feel sad now that i have miss the big crash because i covered my dow too early? I am in this business too long to be affected by all these. The idea is to stay profitable consistently. I am quietly happy to be surviving this bear market as compared to the one in year 2001 where i became a "forced" investor. I think the worse kind of market participant is the kind who win in bull market and then lose it all in a bear market.... year after year.

Yes, i was making money profiting from the downside. But it was not as happy as when i was profiting from a bull market. My mind wanders to my dad's description of how during the last financial crisis, people were queing up at ATM to withdraw all the money for fear of bank collapse. I was probably too young to realise the impact at that time. But now even as i stare at the bearish chart of DBS, i am happy to see a shorting opportunity but at the same time, what if i am right and DBS really go down big time and come out in the news with bad exposure to Lehman and more? My paltry profit is nothing compare to a total financial breakdown which will affect everyone around me. I cannot see myself cheering for a total annihilation of banking sector. Just like when the hurricane was blowing accross US, i was short Dow & HSI... i was so happy that the wind is profits in my short positions grew as the wind blew stronger. I was actually cheering for a powerful disaster. Inhuman, people's homes were destroyed, lives were lost, and here i am cheering just because i am making money out of this natural disaster. I feel wierd. Hence, although i know no matter how they try to bail out, the damage is done, but i support any efforts to stabilise the market for the good of everyone. Stock market is the first level of leverage in the financial arena, if it crashes, it will cause a domino effect.

Today's miracle is something familiar to Aug'07. Then, Fed decreased the discount coupon rate. Market then rally for 2 months before crashing. This time round it will be useful to know where the resistances are and get your CFD ready once again. Over the last 2 days, i was so tempted to short more in the market. I had to hold myself from commiting. I checked the charts, we are too far away from resistances for any good risk/reward trade and the market has tanked too much and may rebound....surely i don't want to be a squeezed shortist.

This market, in chinese, i only have these to say: 不死也受重伤,医好也是残废。

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