Mar 172011

The equities markets have hit my expected downside levels, and then some.  Most of my short was scaled out at what now looks like rediculously high prices but who could have known it’d drop this far?  I’m now flat.

It’s interesting how many people blame the Japan incidents or Egypt or any of the other world events for the markets plunge.  When in fact we’ve known for a while that the market was in weak hands (late laggard longs) who would run for the exits at any sign of trouble (Jan 28 is a good example).  So while the world events did not cause the correction, they were certainly a catalyst.  And that’s exactly what the market needed to scare the late longs and encourage profit taking to start the correction.

Now the question is how serious is this Japan thing going to be?  First the Tokyo markets are dragging down the US & European markets as they’re all very much correlated.  But was the selling over done?  Or is the market pricing in a far more negative future than we’re being given by the Japanese government?

It’s really too early to tell.  There is a lot of uncertainty and therefore volatility.  I’ve found trading particularly challenging this week.  A few days ago I had a great day where everything went right, followed by a negative day (thankfully only 4 pts loss).  Sitting out is OK.  As they say “Flat” is a valid position.

So I have no idea what’s about to come and I’m happy to admit that.  So I’m  just watching and taking it one level at a time.  I originally expected continuation up after the correction but the Japan news is changing that expectation.  We’ll have to see how things develop.  My guess, and only a rough guess, is that if there is no major nuclear radiation leak, the markets will bounce up.  On the other hand if there is a real disaster, the markets could fall quite a bit more.  No sense in trying to bottom pick here, if the market bounces there will hopefully be some pullbacks to get on board.

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