A violent bear market rally started 3 days ago, just after I built a comfortable short position. The S&P 500 is now up 11% from its lows. Although my shorts are getting hammered, my longs are doing OK, so I don't feel much pain.
I still think its a bear market. It is going to take more than a quarter to work off the stimulus excesses of 2021. The rally's job now is to convince as many people as possible that its a bull market.
Bear market rallies of 20% are historically common. I'm currently 33% short. Aim to go up to 37% if we get a 20% rally in the S&P 500 (to 4572), and 40% if we get a 40% rally (very unlikely). I don't think the duration or height of the rally can be predicted, so just guess based on history.
2 comments:
I think you are approaching this in a difficult way. If the bear market rallies 20%, I do not think you are still able to hold your shorts and don’t talk about adding to your shorts. Just a friendly comment. Kindly ignore if you think otherwise.
I'm 98% long, so holding the shorts through a bear market rally is ok for me.
Everyone approaches the markets differently.
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