Stock Online TraderBulls & Bears Make Money, Pigs Get Slaughtered…Let Us Not Be That Pig…

Bear markets are famous for violent rallies. The volatility is high and trading volume is really heavy. Huge swing can be expected in either direction.

Bear markets see huge downward movement, but are always followed up mind-blowing upward spikes like the one we had today for 889 points. At every downward movement, analysts try to call a bottom, and at every upward spike bears call it dead cat bounce. Who is right no one really knows.

This bear market is so brutal that one can be wiped out in a single trading day if not played with discipline.

Lets just look at 3 charts to prove my point.

SRS – UltraShort Real Estate Proshares
The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Real Estate index.

After spiking all the way to 205$ today, SRS fell to 133$, a drop of 66$ or -33%.

33% in one trading day ?

SKF – UltraShort Financial Proshares
The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Financials index.

After spiking all the way to 184$ today, SKF fell to 136$ which means 24% drop of value.

FXP – UltraShort China 25 Proshare
The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the FTSE/Xinhua China 25 index.

FXP closed at 183$ yesterday. Today it opened at 150$ and closed at 118$, a drop of 64$ or -35%.

Bottom line is if you get too greedy or undisciplined in this bear market, say bye bye to your trading career. Early and late shorts will be squeezed each and everytime….

Jobs announcements from the past two days :

• Privately held Chrysler said on Thursday it is slashing 1,825 jobs after losing $1 billion in the first half of the year.
• Goldman Sachs [GS] plans to cut 10 percent of its staff, or almost 3,300 jobs after laying off hundreds of support staff and junior bankers in June.
• Money manager Janus Capital [JNS] said it would cut 9 percent of its staff a day after rival AllianceBernstein said it would make unprecedented job cuts.
• Xerox [XRX] announced job cuts of 5 percent, or 3,000 positions, due to a tough business environment.
• Mining equipment maker Terex [TEX] said it would lay off hundreds of workers and suspend its share buyback program to preserve cash.
• Starwood Hotels & Resorts Worldwide [HOT] said it plans to cut an unspecified number of jobs to offset slowing travel demand.
• United Parcel Service [UPS] sees layoffs in 2009 as customers need less shipping due to cutbacks on holiday gift purchases.
• Computer systems vendor Agilysys [AGYS] cut three senior management positions and is consolidating headquarters in Ohio
• Merck [MRK] announced plans on Wednesday to cut 12 percent of its workforce, citing a need to change its business model in order to survive.
• Fidelity National Financial [FNF], which controls one of the largest U.S. title insurers, announced 1,000 job cuts, office closings, a 10 percent pay cut and a 50 percent dividend cut.
• Biotechnology company Maxygen [MAXY] plans to cut nearly 30 percent of its workforce and explore strategic options due to the current financial environment.
• Popular Inc. [BPOP], parent of Banco Popular, is cutting 600 positions and more than a quarter of its branches in the United States.
• General Motors [GM], which previously said it would reduce salaried employment costs by 20 percent, reportedly plans more layoffs than expected in its salaried and contract workforce. GM also said it is reducing some employee benefits, including 401 k contributions and other programs.
• The insult to injury is you see Mervyn’s going under; Yahoo is cutting 10% work force, Sears and Circuit City is closing stores.

Source: CNBC

Yesterday I posted a blog saying downside potential for EBS is huge. I shorted EBS two days back at 17.99$, once it started reversing. I covered at 16.50$ yesterday taking 8.3% gain in 1 day. Playing it conservative and wanting to book profits, I covered.

However I missed another 11% drop today. EBS can continue its downtrend all the way till $13.75 where it might find some support.

Its frustrating to predict the right behaviour looking at the charts and still bailing out early. I guess this market is so crazy that if you dont take quick profits you will see your gains wiped out soon.

Rule: An important rule to follow here is that once you are out, never look back. Dont regret the decision you made. This potentially affects your game ahead and you end up making silly moves just to get back. No one can predict how high or low a stock will go. Everyone should have an exit strategy before entering a trade. If you stick to that exit strategy and you will just do fine.