DOW broke 10,000 - what next?

The DOW broke 10,000 yesterday. The stock market has an incredible run since March this year.

This brings back to the memories of the pre Asian Crisis in 1997, dotcom boom before 2000 and housing boom before 2007.

Interestingly, the market is very similar to what I saw in 1997,2000 and 2007 before it broke down.

There was a great run like now. Everything is well and good. The stimulus has done its job. Obama has saved the nation from a financial melt down. The worst is behind us.

Don’t pay attention to the inconvenient truth of 9.8 % unemployment. It is a lagging indicator. Pay no attention to $12 trillion debts not counting obligations on pension and healthcare. If all obligations are included, total debt is $52.8 trillion. It is OK with the plan to have a deficit of > $1 trillion/year for the next 10 years as our good friend China will continue to buy our treasuries and support the ponzi financing. Declining income tax receipts, increased bankruptcy filings, increased bank closures, increased real estates foreclosures, depleting FDIC capital base to finance bank failure, declining dollar and increased commercial Real estates failures should all be ignored. Never mind that gold broke up recently which could be the canary of what is going to happen next – inflation and collapse of the dollar.

Lets join the party and enjoy the bull while it is here. Even my grandmother is recommending me to buy stocks! Do not miss the recovery.

This is fascinating. I am still riding the bull over the last few months but all my positions are FULLY hedged. I am clear about my secondary exits. Also, at the same time, I am maintaining some ITM / out in time bear calls, synthetic puts and reversed collars so that if the market breaks down, I can ride on it.

Most probably the bull will continue for another few weeks or even months. The market can remain irrational longer than you remain solvent. So do not fight the trend. If the Dow hits 11000, I will be very, very cautious. I will increase my downside hedge and positions.

In the last 3 crises, I made a lot of money from the downside. I intend to do so similarly – this time with more finesse and conviction.

Stock will not go straight up forever. Bubbles have a nasty habit of popping. If it breaks, it goes down real fast and messy.