A Wild Ride

12/03/2007 12:00 am EST

Focus: MARKETS

Jim Rohrbach

President and Founder, Investment Models, Inc.

Market timer James Rohrbach, of Investment Models, Inc., is awaiting a buy signal from his proprietary mathematical index. Meanwhile, he discusses the pitfalls of shorting the market.

This market is as wild as I have ever seen it. In 7 trading days starting on 11/19/07, we had a big down day, then on 11/21/07 another big down day with the NYSE RIX reaching -41.2 and the NASDAQ RIX hitting -36.5, on 11-23 a big up day, on 11-26 a big down day. Then for the past two days we have seen two big up days. I do not concern myself with wild swinging days, but I must say that I do not like to see big down days before I get out of the market, and I am not crazy about big up days before I get back in. 

We haven't reached Buy Signal levels yet, but the RIX Indexes have moved up significantly from their lows on 11/21/07. The NYSE RIX moved from -41.2 to -5.8 today, and the NASDAQ RIX has moved from -36.5 to -11.7 today. All that could change in the next couple of days, so I wait for the Buy Signals.
 
Once in awhile my subscribers ask me if they should short the market. I am sure that my answer doesn't please them, but here it is, "I never short the market". When I think about it, if someone asks if they should short the market, they should not be shorting. A person who is successful at shorting the market doesn't have to ask that question. I am not saying that others shouldn't short the market, but it's not for me. It requires constant monitoring of the positions that I am not into. I prefer the "Keep It Simple" approach. I have read that only 1 out of 10 Short Sellers are successful. I don't like those odds. 

These last couple of big up days are perfect examples of what can happen when you are short. Be nimble or be killed.

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