I recently heard from a longtime follower of  Rick’s Picks, a retiree who fears for the safety of his nest egg in this “lunatic market environment.” Like many of us, he also yearns to get short ahead of the inevitable crash. I responded as follows:

Thanks for your letter, M. I’m pleased to hear that you’ve evidently been able to find good value in my service. Concerning getting short ahead of the Big One, today’s little squeeze-a-roonie demonstrated once again how very difficult this will be. I use BestSEO, a chat room regular, as my proxy for damn-the-torpedoes trading. Like so many others in the chat room, Best is a die-hard permabear, and not without good reason. He’s also evidently willing to let a short position run against him well beyond the point where most other traders would bail out. Of course, even with his brass cahones, Best’s short positions have gotten stopped out repeatedly. He says he hedges with options, so it’s difficult to tell what he’s actually doing. But I would surmise that he has maintained a ‘core’ short position for some time, and that when the options offset has been factored in, his profits have been very substantial.

My gut feeling is that although a stock-market crash is probably inevitable, it will not be tradable — at least not by way of getting short some afternoon and waking up wealthy (or wealthier) the next morning. Imagine how difficult it would be if The Top were to be made on some Friday, at the apex of a spectacular short-squeeze. The presumptive ‘Black Swan’ that would follow — on a Sunday night, of course — would come too late to save the multitude of traders who’d gotten obliterated two days earlier.

It’s particularly maddening to ‘know’, as we like to think we do, that The Top is already in. My favorite evidence of this is that NYSE Composite breadth readings recorded in late May seem most unlikely to be surpassed. That’s when the bear market began, as far as I’m concerned, and the datum taunts all of us permabears to make good use of it. I’ll keep trying, of course, but only with such strategies as make misjudgment survivable.