This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Don't Get Caught in a Bear Trap

NEW YORK ( FMD Capital Management) -- After a big year, the market has been decidedly weak so far in December. Despite an upbeat jobs report, we are seeing a consolidation in prices across most of the major indices. This consolidation could be healthy, given the height of the market and the incredible run that it has undergone since we began the year. However, it is also going to give some hope to the bears that we will see at least a short-lived selloff before we close the books on 2013.

The percentage of bears is near historical lows. When you add in the potential for tax-loss selling and profit taking before year end, it starts to become easier to convince yourself that the market may already have peaked.

I know more than a few investors who are licking their lips for the chance to indulge in the guilty pleasure of shorting the market from the highs. Those that have missed the rally will be itching for an opportunity to make up that money on the downside. With the advent of inverse ETFs, like the ProShares Ultra Short S&P 500 ETF (SDS), this endeavor has never been more accessible to the average trader.

Personally, I am not a huge fan of trying to call a top in the market or looking to employ leverage to enhance returns by betting against the crowd. Experience has taught me that most retail investors find themselves entering inverse positions at the wrong time and for the wrong reasons.

I have met only a handful of steely traders in my career who have the time, tools and discipline to consistently profit by shorting stocks. These traders have the uncanny ability to set aside emotion and look at an opportunity from a completely objective perspective. In addition, they are quick to cut their losses if the tide turns against them.

More often than not, I talk to investors and clients that end up getting caught in a bear trap that lops off a portion of their hard-earned nest egg. For those who aren't familiar with the terminology, Investopedia defines a bear trap as:

"A false signal that the rising trend of a stock or index has reversed when it has not. A bear trap prompts traders to place shorts on the stock or index, since they expect the underlying to decline in value. Instead of declining further, the investment stays flat, or slightly recovers."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.02 0.00%
FB $104.07 0.00%
GOOG $683.57 0.00%
TSLA $162.60 0.00%
YHOO $27.97 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs