Making Money As A Bear

The market has been dropping like a rock the past two days and I've been positioned quite well to take advantage of it. I was expecting more bank failures to come since the beginning of summer and it was just a matter of time to see Fannie Mae (FNM), Freddie Mac (FRE), Lehman Brothers Holdings (LEH), and American International Group (AIG) take major hits.

I would suggest not taking up any new positions at this time, because it is unknown of what actions the government might take in order to soften the fall. There could be violent swings up and down and any shorts to be taken here could impact your portfolio adversely. Longs could also turn out to be bad trades at this point, even though plenty of things seem to be "undervalued." The truth is that the trend is your friend and currently it is headed for a nose-dive. If you have been shorting for the past 3 weeks, then your profit should be hefty and you should have enough padding to stick through any turbulence now and continue to make money on your shorts after any short-term events that may send the indexes skyrocketing after such heavy selling. I think the market will likely continue to be a bear one.

As for worldwide exposure, I believe that Spain, France, Ireland, and Germany make perfect targets for shorting since their economies are experiencing a great slowdown according to the numbers from the ECB last month. Germany, being the largest European economy, is the flagship of this slowdown. I found some exchange traded funds (ETFs) from Barclay's iShares that allow equity traders to get exposure to these countries through short-selling.

My European ETF short-sell performance since 8/29/08:

• EWG (Germany) : +11.7%
• EWP (Spain) : +10.1%
• EWQ (France) : +12.5%

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BIDU:

1. Upwards trend is broken, which is bearish
2. Declining volume followed by increase in volume when trend is broken is supportive of a trend change.
3. MACD fails to make a bullish cross-over (where black line crosses above the red line) and diverges even further, which is bearish and signifies a trend change.

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RIMM:

1. We see the same trend break down as in BIDU, which is bearish
2. The MACD also fails to make a bullish cross-over, which signifies a trend change and is bearish overall.