You needed the Fed minutes to help you make your way to the exit door? Was that enough of an excuse? Maybe it was a 2.5% drop in crude, a nasty fall in gold/silver and other commodities over the last few days. Or, was it the ‘Walmart’ email last week that gave you pause? Whatever the reason, the market fell sharply in the biggest loss of 2013. Let’s remember, there are a million reasons (excuses?) to sell but only ONE reason to buy. Of course, these big drops look severe and painful when near all time highs as we were following the President’s Day holiday.
With so many up days this month and the beginning of the year sporting a very large 8% gain already it made sense to see some giving back. While that is never a good thing for the bulls, let’s be honest – the market was going up slowly and methodically without much give back and very little volatility. That condition just could not last for very long. But think for a moment – did the Fed REALLY offer up something new, or did sellers just want to believe so?
Is the market entitled to a down day without a change in trend? Or, does it have to go up everyday endlessly with price targets raised like leapfrog. It doesn’t work like that. Painful as a 1.5% drop may be we cannot judge a change in trend based on one day’s action, rather it’s cumulative. We have seen a few days of institutional distribution which I have spoken about recently, so the guard was up.
Markets are naturally volatile which reflect the daily emotions of the players buying and selling. That’s not to say markets cannot be irrational for any period of time. As Keynes once said, ‘Markets can remain irrational for longer than you can remain solvent.’ Indeed, and it cuts both ways. With a pop in volatility it really seems as if the market conditions are back to normal (whatever that means). We’ll now see how the crowd deals with a pullback. Again, conditions are not horrible (yet).
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