Wednesday, 9 July 2008

Cashing In, Even on a Bear Market

Don't believe everyone telling you that there's no way to make money in a bear market. It's just harder.

Take for example Office Depot (NYSE:ODP). Although it's very clear that it's been going downhill for the past year, It decided to go sideways since January. It's been in a tight range until recently. Some view the range as a possible descending triangle. Seeing that ODP has already had a very hard time rising from underneath the moving averages, and the MACD kept pointing downwards, it was only a matter of time before the stock would break down. And break down it did.

As like any good, disciplined soldier, we took to the battlefield of trading 2 nights ago and placed an order to short sell ODP at 10.45. So we went in bravely with both feet and braced a bad news report that ODP's year-on-year sales dropped by 10%. We knew this kind of news would drive the price down but by how much? We were quite pleased to see that we were able to achieve our target and more in just one night as ODP dropped around 40% due to the bad news. We were able to cover our short position immediately around 7.20 and search for a new opportunity.

Once in a while, these jackpots do come, even when things look wrong. Patience is really the name of the game.

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