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.
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.
With the markets making new lows and volatility shaking
investors out and in both directions, I thought this would be a good time to
talk about coping with loss.
The past few weeks have been brutal. Many people I talked to recently are
suffering from "I should have …", or "if I
would have …", or "if I could have …"
thoughts. What do I mean? For example, I might think that things
would be better:
if I would have flattened
exposure before the bail-out vote, or
if I could have held that short a little longer.
The
problem is that thoughts like those cannot affect the past. They only
create more stress and distraction. They are a lens focused on loss,
difficulties, past events, things that are missing, and what you don't want.
Think of them as an unhealthy reflex that wastes energy, confidence and time.
Instead the goal is to move forward and feel better. What follows is a
good head-start.
From time to time, economic and political events make people anxious and
fearful about their futures. This is one of those times. In response to
requests from their clients for insight on how to thrive when events seem to be
beyond their control, Strategic Coach offers ten
strategies for transforming negativity and unpredictability into opportunities
for growth, progress, and achievement.
They call it the "Scary Times Success Manual", and what follows are
some excerpts. The link to the complete version is below.
Forget about your difficulties, focus on your progress.
Because of some changes, things may not be as easy as they once were. New
difficulties can either defeat you or reveal new strengths. Your body's muscles
always get stronger from working against resistance. The same is true for the
"muscles" in your mind, your spirit, and your character. Treat this
whole period of challenge as a time when you can make your greatest progress as
a human being.
Forget about events, focus on your responses.
When things are going well, many people think they are actually in control of
events. That's why they feel so defeated and depressed when things turn bad.
They think they've lost some fundamental ability. The most consistently
successful people in the world know they can't control events – but continually
work toward greater control over their creative responses to events. Any period
when things are uncertain is an excellent time to focus all of your attention
and energies on being creatively responsive to all of the unpredictable events
that lie ahead.
Forget about what's missing, focus on what's available.
When things change for the worse, many desirable resources are inevitably
missing – including information, knowledge, tools, systems, personnel, and
capabilities. These deficiencies can paralyze many people, who believe they
can't make decisions and take action. A strategic response is to take advantage
of every resource that is immediately available in order to achieve as many
small results and make as much daily progress as possible. Work with every
resource and opportunity at hand, and your confidence will continually grow.
Forget about your complaints, focus on your gratitude.
When times get tough, everyone has to make a fundamental decision: to complain
or to be grateful. In an environment where negative sentiment is rampant, the
consequences of this decision are much greater. Complaining only attracts
negative thoughts and people. Gratitude, on the other hand, creates the
opportunity for the best thinking, actions, and results to emerge. Focus on
everything that you are grateful for, communicate this, and open yourself each
day to the best possible consequences.
With the markets making new lows and volatility shaking
investors out and in both directions, I thought this would be a good time to
talk about coping with loss.
The past few weeks have been brutal. Many people I talked to recently are
suffering from "I should have …", or "if I
would have …", or "if I could have …"
thoughts. What do I mean? For example, I might think that things
would be better:
if I would have flattened
exposure before the bail-out vote, or
if I could have held that short a little longer.
The
problem is that thoughts like those cannot affect the past. They only
create more stress and distraction. They are a lens focused on loss,
difficulties, past events, things that are missing, and what you don't want.
Think of them as an unhealthy reflex that wastes energy, confidence and time.
Instead the goal is to move forward and feel better. What follows is a
good head-start.
From time to time, economic and political events make people anxious and
fearful about their futures. This is one of those times. In response to
requests from their clients for insight on how to thrive when events seem to be
beyond their control, Strategic Coach offers ten
strategies for transforming negativity and unpredictability into opportunities
for growth, progress, and achievement.
They call it the "Scary Times Success Manual", and what follows are
some excerpts. The link to the complete version is below.
Forget about your difficulties, focus on your progress.
Because of some changes, things may not be as easy as they once were. New
difficulties can either defeat you or reveal new strengths. Your body's muscles
always get stronger from working against resistance. The same is true for the
"muscles" in your mind, your spirit, and your character. Treat this
whole period of challenge as a time when you can make your greatest progress as
a human being.
Forget about events, focus on your responses.
When things are going well, many people think they are actually in control of
events. That's why they feel so defeated and depressed when things turn bad.
They think they've lost some fundamental ability. The most consistently
successful people in the world know they can't control events – but continually
work toward greater control over their creative responses to events. Any period
when things are uncertain is an excellent time to focus all of your attention
and energies on being creatively responsive to all of the unpredictable events
that lie ahead.
Forget about what's missing, focus on what's available.
When things change for the worse, many desirable resources are inevitably
missing – including information, knowledge, tools, systems, personnel, and
capabilities. These deficiencies can paralyze many people, who believe they
can't make decisions and take action. A strategic response is to take advantage
of every resource that is immediately available in order to achieve as many
small results and make as much daily progress as possible. Work with every
resource and opportunity at hand, and your confidence will continually grow.
Forget about your complaints, focus on your gratitude.
When times get tough, everyone has to make a fundamental decision: to complain
or to be grateful. In an environment where negative sentiment is rampant, the
consequences of this decision are much greater. Complaining only attracts
negative thoughts and people. Gratitude, on the other hand, creates the
opportunity for the best thinking, actions, and results to emerge. Focus on
everything that you are grateful for, communicate this, and open yourself each
day to the best possible consequences.
Have you noticed how correlated and coordinated actions have
been worldwide throughout this crisis? The concept of economic allies
presupposes that we also have economic enemies. It's easy to construct
a theory that countries like Russia and China are using financial
markets to exert leverage in a nascent form of economic warfare.
It is
also easy to construct a theory that says that we are the enemy
ourselves. That human nature's fear and greed instincts and reflexes
almost inevitably spiral into a cavalcade of horrors.
The butterfly effect theorizes that a butterfly
flapping its wings in Beijing on one day can create or affect a rainstorm over
Chicago a few days later.
Likewise in a world where there is so much global
communication, and where automatic trading programs can respond to each other from anywhere on the globe, it's no wonder that market moves are
getting bigger, faster, and more volatile.
Perhaps governments are cooperating and collaborating because of a collective recognition that a new form of
protection is needed to dampen the increasing speed, size and leverage behind
market moves?
Have you noticed how correlated and coordinated actions have
been worldwide throughout this crisis? The concept of economic allies
presupposes that we also have economic enemies. It's easy to construct
a theory that countries like Russia and China are using financial
markets to exert leverage in a nascent form of economic warfare.
It is
also easy to construct a theory that says that we are the enemy
ourselves. That human nature's fear and greed instincts and reflexes
almost inevitably spiral into a cavalcade of horrors.
The butterfly effect theorizes that a butterfly
flapping its wings in Beijing on one day can create or affect a rainstorm over
Chicago a few days later.
Likewise in a world where there is so much global
communication, and where automatic trading programs can respond to each other from anywhere on the globe, it's no wonder that market moves are
getting bigger, faster, and more volatile.
Perhaps governments are cooperating and collaborating because of a collective recognition that a new form of
protection is needed to dampen the increasing speed, size and leverage behind
market moves?
This was a tough week for the markets. Strangely, it might soon prove to have been a good week for the markets as well.
So what is it going to take for the markets to finally bounce? History shows
that most intermediate or long-term bottoms are characterized by panic
selling, hopelessness, and people simply giving-up. If that is the standard, then we may be close.
Here is some of the evidence of the fear, uncertainty, doubt that often accompanies bottoms:
This week reversed most gains from the prior week's rally and short-squeeze.
The markets continue to flirt with lows for the year.
Because of the volatility and gaps, trading simply hasn't been normal recently.
The economy and the markets dominate news and popular culture.
This week, the President of the United States basically said that
if a radical bail-out wasn't done, right now, it would damage our
economy – and many others across the globe.
However, as bad as the markets did last week, they held up
reasonably well considering how much bad news there has been and how
close to the edge things really were (or are). Also, while markets went
down, it was on lower volume than last week, and we didn't break last
week's low.
The Calm After the Storm. It's
also probably worth noting that, historically, periods of great
volatility are often followed by periods of much less volatility.
With that in mind, I do believe that the government will reach a
reasonable compromise to end the "Deal – or No Deal" situation very
quickly. It's also likely that this agreement and the liquidity that it
brings will give the markets some room to breathe and some fuel for a
meaningful rally.
On the other hand, there is a long way to go
from here to recovery. Some people see this as the end of the crisis.
At best, I see this as the end of the first step on the road to
recovery.
You Can't Bounce Until you Hit Bottom.
There are many corollaries in nature. This troubling time created a
clearing. Much of the fear, uncertainty, doubt, and baggage from past
mistakes are being wiped away. Firms are closing, the landscape is
changing, Wall Street and our economy will literally never be the same
again. And, yet, this kind of clearing is often the catalyst to new
beginnings and fast growth.
Noise Reduction.
When creating automated trading systems, one of the things that becomes
increasingly important is to recognize the difference between signal
and noise. Right now, there's a lot of noise. The markets, market
players, and even governments are spooked. Under those circumstances,
it doesn't take much to stir things up.
The bailout and worldwide
cooperation can be looked at as noise reduction. Temporarily, there
will be a forced and tenuous peace. The hope is that as things calm
down, people will make decisions from a stronger position (or at least
from a position that's less fearful than where they are now).
Remember, a journey of a thousand miles begins with one step. Here's to progress.
This was a tough week for the markets. Strangely, it might soon prove to have been a good week for the markets as well.
So what is it going to take for the markets to finally bounce? History shows
that most intermediate or long-term bottoms are characterized by panic
selling, hopelessness, and people simply giving-up. If that is the standard, then we may be close.
Here is some of the evidence of the fear, uncertainty, doubt that often accompanies bottoms:
This week reversed most gains from the prior week's rally and short-squeeze.
The markets continue to flirt with lows for the year.
Because of the volatility and gaps, trading simply hasn't been normal recently.
The economy and the markets dominate news and popular culture.
This week, the President of the United States basically said that
if a radical bail-out wasn't done, right now, it would damage our
economy – and many others across the globe.
However, as bad as the markets did last week, they held up
reasonably well considering how much bad news there has been and how
close to the edge things really were (or are). Also, while markets went
down, it was on lower volume than last week, and we didn't break last
week's low.
The Calm After the Storm. It's
also probably worth noting that, historically, periods of great
volatility are often followed by periods of much less volatility.
With that in mind, I do believe that the government will reach a
reasonable compromise to end the "Deal – or No Deal" situation very
quickly. It's also likely that this agreement and the liquidity that it
brings will give the markets some room to breathe and some fuel for a
meaningful rally.
On the other hand, there is a long way to go
from here to recovery. Some people see this as the end of the crisis.
At best, I see this as the end of the first step on the road to
recovery.
You Can't Bounce Until you Hit Bottom.
There are many corollaries in nature. This troubling time created a
clearing. Much of the fear, uncertainty, doubt, and baggage from past
mistakes are being wiped away. Firms are closing, the landscape is
changing, Wall Street and our economy will literally never be the same
again. And, yet, this kind of clearing is often the catalyst to new
beginnings and fast growth.
Noise Reduction.
When creating automated trading systems, one of the things that becomes
increasingly important is to recognize the difference between signal
and noise. Right now, there's a lot of noise. The markets, market
players, and even governments are spooked. Under those circumstances,
it doesn't take much to stir things up.
The bailout and worldwide
cooperation can be looked at as noise reduction. Temporarily, there
will be a forced and tenuous peace. The hope is that as things calm
down, people will make decisions from a stronger position (or at least
from a position that's less fearful than where they are now).
Remember, a journey of a thousand miles begins with one step. Here's to progress.
billions of dollars of liquidity pushed into the market; and
an incredibly aggressive short squeeze.
Here is what it looked like on a weekly chart of the Dow.
Wall Street experienced several of the best and worst days in its history. Fear spiked early in the week, and there were two days that saw markets lose
about 5%. Individually, each of those down-moves was bigger than
anything we've seen since 9/11. Then after what many will call a Key Reversal Day, there was a breakaway gap higher of more than 4% on Friday.
Somehow, foreign markets were even more
volatile. For example Russia's RTS Index
had a 17% loss in one day, and had trading halted for two days, only to
gain 22% when it opened again on Friday.
It all happened last week.
So, where do we find ourselves? Somehow, pretty much where we were at the beginning of the week. Except you know something important happened. It even trickled down to Saturday Night Live. This week there were several SNL skits related to the market and the market action. People were spooked. More importantly, governments were spooked.
We are witnessing unprecedented market action. I suspect that they will be writing about this period in history books.
Hopefully the actions taken by the government will ultimately have a positive impact. From a trader's perspective, it sure hasn't been easy.
So, how did the interventions affect the markets. One way to see is to
look at how various sectors performed this week. This chart, from Bespoke, shows that Financials and Energy were the beneficiaries this week.
Here are a few of the posts I found interesting this week:
billions of dollars of liquidity pushed into the market; and
an incredibly aggressive short squeeze.
Here is what it looked like on a weekly chart of the Dow.
Wall Street experienced several of the best and worst days in its history. Fear spiked early in the week, and there were two days that saw markets lose
about 5%. Individually, each of those down-moves was bigger than
anything we've seen since 9/11. Then after what many will call a Key Reversal Day, there was a breakaway gap higher of more than 4% on Friday.
Somehow, foreign markets were even more
volatile. For example Russia's RTS Index
had a 17% loss in one day, and had trading halted for two days, only to
gain 22% when it opened again on Friday.
It all happened last week.
So, where do we find ourselves? Somehow, pretty much where we were at the beginning of the week. Except you know something important happened. It even trickled down to Saturday Night Live. This week there were several SNL skits related to the market and the market action. People were spooked. More importantly, governments were spooked.
We are witnessing unprecedented market action. I suspect that they will be writing about this period in history books.
Hopefully the actions taken by the government will ultimately have a positive impact. From a trader's perspective, it sure hasn't been easy.
So, how did the interventions affect the markets. One way to see is to
look at how various sectors performed this week. This chart, from Bespoke, shows that Financials and Energy were the beneficiaries this week.
Here are a few of the posts I found interesting this week:
