Near the end of the day I opted to move to the sidelines as I was beginning to feel like I was pressing my luck on the short side. Don’t get me wrong, all my indicators are still pointing down but there’s a major wildcard out there named nationalization that could change everything. I’ve never lived through government controled banking system, so I have no precedence in knowing how investors will react to such an event.

What I can’t wrap my head around is are we going to just drop here like a rock and hit a tradeable bottom or is the government going to pull the mother of all manipulations and nationalize all the banks. If that happens it could spur one of those massive 1000 point rallies in one day and I really don’t want to risk that. I’m positive for the year and protecting your equity is everything traders should be concerned with.

If I would have had larger gains from shorting these past few weeks I would have felt more comfortable leaving my positions run, but as it were I had OK gains, but nothing spectacular as my position sizes have been small. Everybody’s risk tolerance is different, and for me to operate at optimal levels I need to eliminate as many avenues of risk as possible. On the bright side, this lemming scan has really been finding some dogs, so I hope others are trading some of these stocks on the short side.

To wrap it all up, we are at dangerous levels with a major risk of another crash, as today we touched a new bear market low. But the risk of a large snap back rally makes it difficult to hold many shorts, as the possibiltiy of further government intervention is always present. My advice is to trade small, and pyramid those gains into other positions, while keeping stops tight whether they are mental or not. Sitting on the sidelines keeping your head clear is not such a bad idea either…

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One Response to “Capitulation vs. Nationalization”

  1. Jason G. Says:

    Another wild card – today is option expiration day.

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