-- Posted Friday, 12 May 2006 | Digg This Article | Source: GoldSeek.com
Rick’s Picks
Friday, May 12, 2006
For investors who’d rather be smart than lucky
Thursday’s plunge felt right as rain, at least to me it did. But if the weakness were to continue for another day or two, what to think? After all, it’s been a long, long time since the Dow Industrials experienced a decline of more than a hundred points two days in a row. So long, probably, that anyone who has been nurturing and continually refreshing a cache of put options over the last few years might have been tempted to cash them out in the throes of the yesterday’s curiously persistent selling.
Could shorts be in for yet another jolt of negative reinforcement? Imagine being zapped by a cattle prod every time you thought about good sex. But that’s what happens to shorts every time stocks fall hard enough to breathe life into put options. The next day brings, not the hoped-for doubling of profits, but a surge of pain where one’s privates used to be.
On the other hand, dwell for a few moments on the elongated price bar that’s highlighted in the chart above, and you can see for yourself that it sure as hell looks like the start of something. Angel Falls, perhaps? Don’t think you’re just imagining it, either. Any investor or trader with the patience and gumption to be holding a whole lots of puts right now should stick to his guns. This market is s-o-o-o ripe for a fall that, this time around, perhaps it will be the Plunge Protection Team that feels the paralyzing jolt of the cattle prod.
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