Short change

Times like these caused me to give up writing my blog last time. I sit and I watch with no money in the game. No profits, no losses. I have to remind myself that the reason I've pulled out of the market is: no losses.

I have conducted a few new backtests and, reluctantly, I've convinced myself that I am doing the right thing. I have taken my S&R timing list and tested what would happen if I bought contra ETFs (that is Exchange Traded Funds that are designed to go up when the market goes down) whenever there was a down signal and vise versa. 

I've tried this every which way, with stop losses , without stop losses, with restrictions on repurchases when positions get stopped out and without. I have tried using Vector Vest’s contra ETF watchlist to inject variety into the selection, and I've tried plain vanilla with a watchlist that just contains DXD and SDX (which mirror the DOW and the S&P). And I have tried a couple of Vector Vest’s own timing lists.

The answer is always the same. You can’t make money on the short side of the market. That’s not quite true. If you know in advance that you are in for a really big fall then you can make money, quite a lot of money, but how do you know in advance that the fall is going to be big?  You could do it by instinct but that’s plain gambling.

The results bear out the outcome of my own clumsy efforts to make money on the short side of the market. I’ve ALWAYS lost.

I’m not saying it can’t be done. I’m saying I can’t do it and now I’ve shown myself why it’s so hard. Best sit on the side-lines and wait till the market promises you an easy ride by going up.

Fibonacci power

It looks as though the S&R approach is calling the market correctly. Broken support has presaged a decline. It is very evident on the FTSE.

The Dow looks a little different. Yesterday the 61.8% Fibonacci held it down. (Sometimes those horoscopes are spot on). And today futures are indicating a 120 point fall to 15112 That would place it on the broken resistance line. It would be ironic if that resistance turned into support. We shall soon see.

As far as I’m concerned I’m hoping for a continuation of the fall. The bigger the fall, the bigger the bounce. A big bounce is what I need to recover the losses I made when I misguidedly, tried to short the market and to buy some gold as a hedge against renewed inflation.