After much debate with myself, I’ve decided to throw caution to the wind and go ahead with it. It’s not normally my style to put out a specific short term trading plan, but these aren’t normal times. Once the bond vigilantes came for Italy, the genie escaped his bottle.
In equities, expect a vicious short squeeze rally soon. Perhaps not today (Friday 5 Aug.), but if not today, then early next week, after the customary soothing sounds from the Eurocrats over the weekend. Then a bit of sideways trading, and another drop when everyone realizes the Eurocrats haven’t gotten a grip on this situation at all. (If we don’t get a short sqeeze rally, then it really has all gone to hell)
General trading plan:
1. Don’t be short now, you’re likely to lose your shorts.
2. Take advantage of the rally to unwind any longs you aren’t keen on holding through another crisis.
3. If you are particularly brave, go short after the rally, during the sideways bit.
4. If you’re not particularly brave, stay on the sidelines until this thing clears, don’t fall for sucker rallies, then get back in on the cheap. Remember 2008-09?
5. Currencies and precious metals don’t count as being on the sidelines. Central bankers will make currency traders crazy, and the precious metals are subject to more forced unwinding because institutions are in with heavy leverage.
That plan is all subject, of course, to going terribly wrong at a moment’s notice, but it’s my plan…for now. It may, needless to say, be completely inappropriate for anyone else. Caveat emptor.
Good luck, and for heaven’s sake please be careful!