Weekly Commentary through October 17th, 2008

The markets gained some ground this week, at least from a point perspective. It's so tempting to want to believe that the worst is over because of some of the rallies we've seen since late last week.

It is possible that last week marked a major bottom. However the market is certainly not trading normally. So I'm not convinced.  The volatility we're seeing is unprecedented.

Just this past week we had days with 10% - 15% swings inside the day. In fact, over the past 10 days the Dow had intraday swings of almost 85% of its total point value. We also saw the largest single day loss in the S&P ever (9%) as well as one of the biggest gaining days ever. My point is simple, fear and greed are still operating in extreme levels.

Stress Metaphor and the Markets:

A lecturer, when explaining stress management to an audience, raised a glass of water and asked 'How heavy is this glass of water?' Answers called out ranged from 8 to 20 ounces. The lecturer replied, 'The absolute weight doesn't matter. It depends on how long you try to hold it.

'If I hold it for a minute, that's not a problem.
'If I hold it for an hour, I'll have an ache in my right arm.
'If I hold it for a day, you'll have to call an ambulance.

'In each case, it's the same weight; but the longer I hold it, the heavier it becomes.'

He continued, 'And that's the way it is with stress management. If we carry our burdens all the time, sooner or later, as the burden becomes increasingly heavy, we won't be able to carry on.'

'As with the glass of water, you have to put it down for a while and rest before holding it again. When we're refreshed, we can carry on with the burden.

How does this apply to the stress and the volatility hanging over the heads of market participants? The potential recovery is in a fragile state simply because people are stressed and tired; and I don't think it won't take much to trigger another bout of fear and greed.