I guess I can introduce stop-loss and other cautionary measures to prevent snowballing loss, but shorting is shorting… Wonder if I could resist the urge.
I guess I can introduce stop-loss and other cautionary measures to prevent snowballing loss, but shorting is shorting… Wonder if I could resist the urge.
The short answer is just don’t. If you listened to Jerome Powell and the FOMC meeting here the other day, they specifically said that they were lowering the interest rate again and were going to stop quantitative tightening on December 1st.
Eventually they will start expanding their balance sheet again which will cause stocks and the markets and everything to go up because there’s a higher quantity of money chasing the same amount of whatever stocks or bonds or whatever you want to talk about.
With all that said and out of the way, if you do want to short, I suggest using an extremely small portion of your position to do so, like maybe 1% as a small hedge against a fall like that.
I disagree that FED lowering interest rate means stocks will be ballooning. Often, lowering rates mean the economy is bad enough to do that, so there has been instances where stocks went down with interest rates.
Also considering how most market participants are talking that rates are going to be lowered, I believe it is already priced in.
I definitely think you could see a temporary drop, for sure, because of the economy. But I would not want to bet on just how deep it would be, and how quickly it will end.
Remember 2020 when they shut the entire economy down? The stock market temporarily went into freefall, and then the Fed came out with the freaking bazooka and sent it right the heck back up. Well, that and the stimulus checks.
Covid was a black swan event, so no one envisioned both the lockdown and Fed intervention. There is no way it was priced in.
On the other hand, Fed lowering rates has already been talked about for years. High probability it was priced in.
I actually think covid short circuited a correction that was overdue. Covid provided an excuse for irrational exuberance along with the stimulus.
In the same vane Shorting tech stocks as rates are going down could be a bad play. As valuation for tech stocks tend to rise on lower interest rates because of some BS with their assets. I forget. But as this is a month old post… How’d that work out for you? I think we know.
Not so fast, lemming. My bet got back to profit, theoretically I can close it now. I am waiting, though. If things go awry, I can always close at a small loss when my stop-loss is reached. Never do naked bets.