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Georgia, US
Legendary Market Wizard
Experience: None
Platform: SC
Broker: Denali+Rithmic
Trading: ES, NQ, YM
Posts: 6,236 since Jan 2011
Thanks Given: 6,776
Thanks Received: 18,227
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I thought we should revisit this for posterity. Dow has new all-time highs this past week, currently sitting just under 14,400, intraday highs around 14,413.
I don't care about the original poster's trade really, just wanted to update the situation. Anyone who has shorted this market and has still not let go has had to take some heat so far. Not a lot really, but perhaps significant for some.
Let's say some people started a short on diamonds at a price of around 140, which was where the market kept bumping against for a while. They are under water $3.76 per share right now (a measly -$376 for 100 shares, -$1880 for 500 shares, etc.). If they did it on only 1 mini dow futures contract (let's say they were super savvy and got in at 14040 on YMM on March 4), they are under water 275 points, or -$1375.
There is often a lesson, and here is my initial view confirmed. In general, it is this: don't short a market which is accepting higher prices (and vice versa). Wait until there is evidence of a rejection of higher prices. More specifically, it is this: we are in a 4-year bull market, helped along by super accommodative monetary policy not only by the Fed but by the ECB and other world banks; we are at all-time highs.
Another more general lesson is that prices themselves are not indicative of a lot. While dow 14,200 was a prior resistance level and a significant number, it was more important that the market saw higher value in recent times and so needed to test if higher value would be established above this prior resistance level or not. And the contrary view is valid as well: even though we have had higher all-time closes on the dow for the last several days, on the grand scale of things the market has not had time to clearly show whether these higher prices will be fair and accepted, or whether this is just initial testing and euphoria. So the fact that the market is making new highs means nothing really; the question remains as to whether 14,200+ will be considered fair or not. The price is simply the advertising mechanism to lure in business, and is not necessarily equal to the broad consensus of what is actually fair value.
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