If you were trading last Fall, you’ll remember when this picture exemplified each day after 3pm when huge sell/cover order imbalances were pushed out into the market from hedge funds and other large participants experiencing forced selling to meet huge margin calls. We in the stockpickr.com forum would joke *put your seat backs and tray tables in their original upright position* and watch the wild ride into the close. Obviously it wasn’t fun if you saw your investments go up in smoke as most of us did but in retrospect, today didn’t bother me one bit. In fact, it was exhilarating because most of us knew the market was toppy and were hedged accordingly. Most of us had our stops in place or had taken off much of our profits. Me? I almost wanted to make popcorn. So why don’t I seem worried?
Well, this will all seem very simplified but I prefer it that way to prevent myself from overthinking and clouding my judgement with the emotion and macroeconomics of it all. I’m a realist. **If** the rally is over, stocks will get back to these levels again. Could be in a week, six months or a year but we will attain these levels again so ultimately, no worries. We already knew we were poised for a little correction and some profit taking. Absolutely. Is theUSD still weak? Yep. Now we are coming to the end of QE or buying our own debt but the Fed continues to stress that they will not begin to rectify our massive debt for months. While the USD may gain a little strength, it *is* the weak link as currency trades go so that is not changing right at the moment. Last and most importantly, though, is my belief we saw the beinning of massive sell/cover orders on behalf of Galleon Group who, according to their co-founder Raj Rataratnam, will be liquidating their holdings unless other arrangements [such as a sale] can be made. If you’re Raj, you want do this while the market is rising but since the market is toppy and he may not have to wait, you begin to liquidate now. Several of their small cap holdings began the week off with 10-15% selloffs and today we saw more of the same in the mid and large cap arena. How long will it last? WSJ estimates 3-4 days but no one really knows. Am I hedged for the ride? What do you think 😉