As traders and investors, we look for some consistency with market movements. But the random gyrations are hard to navigate at times. The news, tweets, policy give market players fits, and that drives us batty. When the markets seem to want to zig, they zag - and vice versa. Uncertainty is part of the game of course and that is how we make our dough. We have to be willing to put our capital at risk during a time when others are fearful and worried.
Yet, recently we have found these surprise events startling to the point of disbelief. With markets at/near all time highs, it is hardly 'everyone into the pool'. Sentiment has been poor, many are skeptical the markets can rally. That point of view is valid, as the erratic price action leave one to wonder if markets will ever settle down.
But when surprise announcements hit we find the price movements in stocks to be even more troubling. Bid/ask spreads widen out, our stop losses are triggered and volatility increases. Traders like volatility swings, it creates opportunity where there was none to begin with. Market movements push the hot money to the side, the big money steps in and buys stock when there is panic. Same as it always was.
We need to resist the first instinct of 'sell first, ask questions later'. While we may feel a bit of pain in the short term, it's not likely to last very long. Take last week, when the SPX 500 was blasted on Monday. At one point, the '500 was down more than 100 points, or 3%. Markets reacted to news from China and their currency, and a spillover from last week's intense selling.
It was a rare 90% down day, and could you blame anyone who threw in the towel? But that huge crash-like drop only lasted for a day, and in fact all of that loss was made up over the next three sessions! Pretty amazing.
But if you left the scene, you ended up buying stuff back at higher prices. It's the pattern we've seen over and over again. Some day that won't work and the dip buyers who came in to save the market this past week will get burned badly. But we're not trying to predict when that day will come.