Burrowing out of a hole

Yesterday was a particularly unpleasant day, as too-easy assumptions unravelled and the dow plunged mid-afternoon. Flash Rabbit had been smugly sitting back and incrementally adding long positions in various equities, congratulating himself on being ahead of the crowd (probably along with half the rest of the trading community) when carnage broke out as financial shares in the US furiously sold off. Within half an hour all the day's gains and more had been wiped out. And his carefully honed dollar long positions were taken almost back to zero but for quick paws on various buttons.

The only saving grace was - continued short positions in Allied Capital (which nosedived), Dexia and Starbucks - and a quick short for a few quid profit in MBIA. But the AMBAC short tanked- and then bombed back down...and most of the sneaky long equity positions got hammered. Result - losses, mitigated only by 60 points of Dow that Flash Rabbit managed to guess the direction of correctly. However he resisted the temptation to shut everything down and sat watching it through with a slightly queasy feeling in his stomach, wondering if when he woke up this morning he would find all his money had been stolen by the evil bears.

This morning hasn't been quite as bad - so far- as he thought it would be. Whether the market continues to hold back from the brink or lurch off another cliff is not clear. He is trying to be optimistic but given his pessimism about banks and debt he thinks there may well be more nasty shocks on the way.

What hasn't worked

Long positions in Axeon Holdings, ASOS, and Stanelco - all looking like a car crash - not quite stopped out but it looks almost inevitable that they will be. Flash can't work out why the market hates these stocks quite so much - to him they all look like a good prospect, but he's not going to throw any more money at them. D1 Oils was looking OK but then the G8 ministers decided to have a go at biofuels, combined with a tumbilng oil price, which knocked them back a fair bit.

Trying to find a point to go long FTSE and Dow Jones - although alertness has avoided carnage there. This morning Flash has long positions from 11110 and Dec 08 FTSE at 5450. So far so good, but the panic button is in place if the indices plunge when Wall Street opens this afternoon.

What has worked - just about (so far)

Long positions in Scottish and Southern Energy, Game Group, Firstgroup, and from yesterday - British Airways.

A big short position in Allied Capital, Thomas Cook and some smaller shorts in Dexia and Starbucks. The easyjet short was abandoned when they produced better than expected passenger numbers and oil began to ease back.

At the time of writing, the european markets have perked up a bit - but Flash will probably hedge his longs with a sell on one or other of the US futures before Wall St opens. One of his biggest regrets is closing out his S and P, FTSE and Dow shorts at the end of last week - he would be much more relaxed if they were still there.

He is still short EUR/USD and short GBP/USD (although vigilance is required); long Dec 08 and Jun 09 Euribor, but if the US markets continue to tumble and the dollar softens, then he might begin to think about abandoning the currency bets.