Sometimes, it seems our brains move in slow motion as it relates to market action. Perhaps it is the computers and High Frequency Traders (HFTs) that are just lapping us. Maybe our hopes and expectations get in the way of sound judgment and free thinking. Maybe it is the angst we sometimes feel when the market is as volatile as it has been recently.
I can’t seem to put my finger on the reason why it this way, but, in any case, it doesn’t matter, as it is the patterns that truly matter. I look for these patterns to play out over and over again, and while sometimes it is worrisome to just jump in, there are prevalent conditions that give us the best probability for winning trades.
After that horrid collapse and reversal on Tuesday and then again Thursday, was there any way you would even touch the market or even get close? Burned at the stake? Heck no! This market is moving fast, and that pretty much has most everyone just guessing. The speed of these moves is astonishing, and that is what makes it seems as if our brains are moving in slow motion. Witness this week in the market.
We have and scary drops and reversals in 2014, far more than in the last couple of years, but they have all been great openings to jump on board. You can feel the angst and the worry …“Oh no, I am going to miss a big rally like we had in Oct-Nov?”
Perhaps the “easiness” we felt trading in 2012 and 2013 has ingrained a nasty complacency in many of us. That needs to be removed.
As fast as it was to turn minds against the market since Dec 1, perhaps it was a 5% shakeout that was necessary. Maybe the sheer size of the move is what is scary, but a 50 point SPX move at 1000 is the same percentage as a 100 point move at 2000.
Putting Wednesday’s move into context, we can see from the chart below that volume expanded though price was held captive to an inside day. If this day is worth its weight in gold, then we would see a higher high, a higher low, and then price would start to attack some moving averages from above. In other words, the decline will have halted abruptly and the markets may drift higher until an overbought condition is reached.
