Too Much Optimism So Soon After Disaster

Last week, small-caps outperformed as the mechanizations of large long/short macro funds pushed many of them around in seemingly random fashion. That influence is reversing out so far today, and we have small-caps underperforming while the DJIA and S&P 500 are making up some ground.

I was looking for small-caps to show relative weakness this week, and that is why I made the iShares Russell 200 (IWM) short my stock of the week.

Breadth has stayed fairly steady most of the day, and trading overall has been calm, especially when compared to the wild action last week. Investors actually seem a bit complacent today, which is surprising given how fresh the recent subprime trauma still is.

As I stated in my earlier posts, the fact that so many seem to be so quick to declare the worst over and are optimistic that the market will return to where it was a few weeks ago has me concerned.

This seems like a too easy and simple correction especially, since there really isn't any clarification of the many problems out there. I'm net short and likely to get more so in the near future.

At the time of publication, De Porre was short IWM.

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James "Rev Shark" De Porre is the founder and CEO of Shark Asset Management, an SEC-registered investment advisory firm. He also operates sharkinvesting.com, an interactive online community that serves and educates active investors. De Porre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children.Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here to send him an email.