Comments Off on Watch Your Speed! Fast Markets CAN Be Profitable (or Deadly!)

Watch Your Speed! Fast Markets CAN Be Profitable (or Deadly!)

Down 5.8% in about ten days, up 5% ten days later.  The speed and reversal of these moves is so quick if you were long or short you might need to wear a neck brace from whiplash.   If you took a wrong turn you might have been side-swiped our run off the road.  Analogies aside, market uncertainty creates fear, and with that fear many flock to the sidelines for safety and protection.  Most will wait for the all clear signal to arrive but when that occurs the big moves have already happened.  If you went away end of 2013 for two months and are just getting started in the new year it seems nothing really happened, right?  The SPX 500 is up a tiny fraction since year end, the Nasdaq and Russell 2K are up nicely and on pace for a decent showing this year.
Volatility spikes over the past year or so have been the rule rather than the exception.  Some pretty nice patterns and trends have developed (see the chart).  The panic from these fear spikes have been great chances to get on board long this market, and coupled with severe oversold readings they have led to powerful moves.  But when is it ‘right’ to get on board or stay put?  What if you exited in late January and are now scratching your head, wondering what the heck happened.  After all, this market rally off the 2009 lows is now about five years long, and while we don’t see technical signs of that coming to an end, realize this is one of the longest recoveries on record.
The late January swoon was just a release of pressure among those looking for an excuse to sell and book profits.  Who wants to be the first one off the boat if it’s going to keep sailing?  But, any excuse will work – there are a million reasons to sell but only one reason to buy.  Will we drop and have another opportunity again?  I’ll follow the pattern until it no longer works. We always advocate taking profits when YOU want to do it, not waiting for the market to do it for us.

If we pay attention to the market and trust the trend then even the sharp whipsaws could be handled and managed properly.  Naturally, the bulls’ confidence is high as the markets reach up and tag new levels, but because we are all more inclined to panic or run for safety at the first sign of trouble, this is where the volatility comes in — and with it, some opportunity.  If you have big gains from 2013, who wants to see those disappear?  It sure seemed that was happening in January.  However, those who stayed the course and even bought the dip (for the sixth time in a row) have been rewarded.  The rest will buy up at higher prices, the pattern of missing out goes one.

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