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My Conversation with MarketWatch About my Hair-Raising Contrarian Short Positions Taken Out (and Published) on Dec 30 During Peak Market Euphoria

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Via Wolf Street

“I’m a little worried that this could cascade.”

By Wolf Richter for WOLF STREET.

Last night, I had a long conversation with Mark DeCambre, MarketWatch’s markets editor, about the short positions I took out on December 30 because, as I said at the time, “the setup is just too juicy.” This was the first trade in my life that I had published to the entire world  [I, Who Vowed to Never-Ever Short Stocks Again, Just Shorted the Entire Market]. DeCambre had reported on this trade on January 2.

This contrarian trade came near the peak of market euphoria after the S&P 500 had surged 30% in 2019, when nearly everyone said that stocks could only go up, and that the Fed would do QE-4 forever to make sure that stocks would only go up, and that fundamentals, no matter how crummy, didn’t matter.

Publishing a trade that’s so utterly contrarian and so against what so many people are saying produces two risks:

  • I could get my face ripped off by the market
  • And if #1 came to pass, I would also be ridiculed.

And the responses – the article got 334 comments, and many more comments about this trade have been posted on other articles on WOLF STREET – varied, often depending on how the market went that day. Early on, on a day when the market fell, I was hailed as a genius; the next day when it rose, I was hailed as a moron, then the following day as genius, and the rest of the week as a moron….

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Over the past two weeks or so, the short positions have made money. But I’m full of doubts and I’m edgy about the positions, and I’m nervous about them to the point that when the market plunges, as it did today and on Monday, I’m tempted to cover the short and get out of it. But for now, the patterns of a bear market hold, and I’m sticking to it.

This morning, MarketWatch published DeCambre’s article about our conversation interwoven with his own market insights. So here some tidbits. The whole article is great because it combines the outside view and the inside view of my contrarian trade and the issues surrounding it, and the problems facing the market and the economy. So here is DeCambre:

But on Monday, Richter felt that too much negativity had overwhelmed the market which could manifest in a washout in stocks, a major slump that might signal to him that he should unwind his bearish bets and count his winnings.

“During the day I was looking at [the market] and keeping my eyes on it, and it was distracting me from my work,” he said. “But though I thought about covering, I never got close enough to opening my brokerage account,” he said.

Richter said Tuesday’s 1,200-point gain for the Dow, erasing some of its 2,000-point slide in the previous session that was marked by the S&P 500 triggering a rarely used circuit breaker that kicks in when the index stages an initial 7% plunge, confirmed his bearish view of markets.

The market pro told MarketWatch that Tuesday’s rally for stocks was indicative of a bear-market rally. “The down days are more frequent, and the up days are more violent,” he said.

You can read DeCambre’s whole piece on MarketWatch, including my views of what this market might look like under the coronavirus – “I’m a little worried that this could cascade.”

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