Thursday, May 6, 2010

Ouch! Nasty Whiplash

This is why I try to keep the TV-watching to a minimum during the workday. In maybe 20 minutes I've seen the market plummet from down 5% to down more than 9% to now down about 4% (and climbing).

This is a pretty good microcosm of why I got out of the business ... there's way too much doing and not nearly enough thinking. Now, I'll grant that the decline may have really accelerated because of the impact of program trading, but that's not all of it. Institutions will program in stops at, say, the 200-day moving average, and then you can get just a cascade of selling as all of those stops trigger and force sell orders.


But it's pretty clear that people are really jittery and easily spooked these days. It seems like traders watched the news, saw unrest in Athens, and decided to de-risk their holdings. As the markets dropped, rates moved fast (as did gold, though to a lesser extent) and things snowballed.

At this point, nobody wants any risk. It wouldn't shock me to see the market close weak (despite this intraday rebound), as I doubt nervous traders want to hold equities overnight. So when you have panicky people, you get panic selling.

Is this is a great buying opportunity? I don't think so.

You and I can't buy nimbly enough to really profit off of these large intraday moves. So while I see a lot of volatility and nervousness in the near term, I think it is very difficult to play that effectively. The best advice is probably old advice - buy good stocks at prices that give you a wide margin of safety. And, to be very frank, it may just be time to step away for a bit and let things settle down.

This is *not* the end of the recovery, *not* the end of the euro, and *not* the end of the world. But what good does that do you when hyperactive traders all scream "sell" at once?

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