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  • aco_brasil0192 aco_brasil0192 May 11, 2010 8:55 AM Flag

    Remember TARP?

    Yeah, the China news isn't good. There are concerns being expressed that some European nations won't pony up the cash for the $1 trillion package.

    While you compare this to TARP, however, I am looking more toward the March 29th, 2009 Fed QE announcement as a model, which sparked a huge surge in the markets followed by a step back then another boost. That move also dropped the USD, which didn't have such an adverse effect on the markets. Also unlike when TARP was announced, many European securities (not just banks) have already hit multi-year lows). I think the risk-reward for STD is still to the upside in the medium term.

    We'll see how this plays out soon enough.


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    • ACO,

      If 2008 taught us anything, it's that nothing is too oversold that it can't go lower. I had people at my trading desk telling me Citi was a good idea at 30, then 20, then 10. Thankfully, I knew better. Today it's a $5 stock.

      That's why I thought your STD trade was riddled with "lottery" risk. When stocks are dropping like knives, fear grips the market and new lows are being made consistently, purchasing a a falling knife is pure gambling. Look at AKS, for instance, in 2008. The stock went down consistently from $70 to $5.50, throughout the year with hardly a bounce. There's no technical analysis law that says an oversold stock needs to have a "medium term" bounce. If fundamentals are decisively negative and the environment is panicky, oversold conditions can persist for long periods of time.

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