Early in today's session, I covered my SandDisk short position because the stock, along with the Nasdaq 100 index, looked to have faked downward and be set for a rally. I held my SNDK put position just in case I was wrong. By midday, it was utterly apparent that I was wrong. The market collapsed... as I had postulated it might in yesterday's post... and took SNDK shares down more than $2 from my cover point.
Then something different happened.
I'm not sure whether the market simply got too oversold or if some news I overlooked turned heads, but stocks turned on a dime and headed back to the highs of the day. By the time it was all over, SanDisk shares stood higher than where I had covered my short, and the NDX had recouped nearly 40 points! Bulls may be near-sighted and stubborn, but bears are simply schizophrenic. Just about any tech stock for which you care to pull a chart shows an impressive reversal. Stocks that did not manage reversals today may be the weaklings on which traders should focus for shorts going forward. A few on my list that meet this weakness criterion are Intel, Lam Research, and F5 Networks.
The early blowout in stocks appears to have been spurred by an acute case of hawkophobia, as the EU and Korea announced tighter monetary policies overnight. The dollar soared, contrary to what one would think would happen when other countries are raising rates, but I suppose traders took those moves as a sign that the Fed was sure to continue hiking. I'm not sure how much longer the potential for more rate hikes will dominate the market's psychological backdrop. People tend to focus on good news and rationalize away the bad. At the moment, however, higher rate prospects still appear to be front-and-center.
Along with the dollar spike came a renewed round of metals bashing. Gold shed 3% while silver got walloped for nearly 6%. Miners slumped underneath the weight of both a sharply falling market and sharply lower metals prices. At one point, with Pan American Silver in the mid-16 range, I simply couldn't resist buying some. The last time PAAS saw those prices, silver sold for less than $8. I also believe mining shares are feeling around for a bottom. That said, the bottoming process may take days or weeks, and I believe prices are more likely to move sideways than shoot to new highs, but that is why I began my metals exposure process by selling puts and will execute my accumulation strategy slowly.
While I continue to believe that the intermediate direction of equities is south (and sharply so), I reserve the right, as schizophrenic bear, to change my mind about the immediate direction of the market on a daily basis. The impressive reversal we witnessed today is suggestive of a near-term counter rally, especially since it was accomplished in the face of a dramatic break of support. I do not intend on trying to be too fancy by covering more shorts in response to this scenario, especially since the market is inducing me to change my near-term outlook so frequently. Rather I will patiently await opportunities for building up my short portfolio.
Disclosure: Short INTC; Long INTC, SNDK Puts; Long PAAS; Short PAAS Puts