In spiraling markets like this, there is always the desire to bottom pick, myself included. Without a doubt, there are absurd values out there, that will eventually end up being big money makers for those who had the stones to step up and buy. However, until stocks stop trading lower, they will be subject to forced selling. Forced selling will be done by hedge fund managers liquidating their fund due to end of year redemptions or closure of funds. And, it will be done by retail investors who are heavily leveraged via margin call selling.
This sell off is about two weeks old now, with the S&P down 6 straight days. With the high levels of margin debt out there, without a doubt, this means people will be liquidated as the market falls.
The most vulnerable stocks are ones favored by hedge funds with thin floats. And, stocks that trade less than 500k shares per day are especially prone to melt-downs during margin liquidations. More often than not, brokers ignore calls and the clerks hit bids at 3:00, at the market, not giving a fuck about executions.
If you are buying a stock because you feel the valuations are too attractive to ignore, keep in mind the shares– like Puma Punku– are trading without logic. LOGIC DOES NOT EXIST DURING MARGIN LIQUIDATIONS.
On the other hand, if you start to see stocks trading up in a down tape, after getting flushed, those stocks might be signaling bottoming out action. My favorite dip buys are stocks down more than 20% over the past two weeks, % of float sold short more than 15%, with solid fundies. The shorts will serve as a bid in a bidless tape. Often times owning stocks without big short positions can be more dangerous than heavily shorted stocks in liquidation tapes– due to lack of natural buyers. At least in heavily shorted names, profitable short sellers will close out trades, providing bids.
TLT is trading up. US treasuries are the main beneficiary of this shit fest. This is a fucking unmitigated horseshit of a mess. Stay away.If you enjoy the content at iBankCoin, please follow us on Twitter