As I have said many times, the market is simply our collective thinking at work. It reflects our market-oriented fears, hopes, ambitions, and mental health. Aside from mindless and emotionless software with algorithms programmed to act on technical signals or bid/ask spreads (or other such sophisticated programs), the “market R us,” so to speak. Putting aside the computer/software angle, I want to look at the reflection of our market-oriented mental health, and I will do this with a question that has come my way.
Do you think the market has bottomed out or is just a head fake?
This legitimate question reflects the primary thought of all market participants, no doubt. Even those who get up in the morning, absolutely certain they know what the market will do that day must, at some point during the day, question themselves when the market moves against their certainty.
Take today, for example. How many experts told us yesterday with certainty that the market would go down today? Better still, how many traders bet the market would go down today? Now, it might still go down, as the market is open as I write, but the point is that the question above and the market behavior today reflects a certain amount of doubt, a sense of not knowing which way to turn. This question, my friends, along with the roller-coaster movement of the market reflects our market-oriented mental health, and it is showing us to be a bit schizophrenic at worst and a bit neurotic at best.
For example, yesterday afternoon when the market began paring its losses, I entered a trade that I had been eyeing for some time. I just needed the price to get to my entry point. Mind you, I was not looking for a low price. I wanted a higher price that broke resistance. When my trade broke through and continued rising rapidly as the market bobbed up and down, I entered. Mind you as well that entering the trade when I did is not a good trading practice, at least not to me. Usually, I wait to see if the price can hold above resistance, but yesterday I did not. I entered that trade on impulse, worried that I would miss the best entry point. I am sure that I was not alone, as the price-action furiously picked up and the stock rose some 7% in a market that was almost 300 points down earlier in the day. This morning, as the market rose and held its gains, my trade dropped almost 5%. Yes, I understand profit taking, but that explanation is too simple, too pat. It avoids the issue of the stock rising rapidly in a broad market that looked to be collapsing. No, my trade is but one small example of the market-oriented disorientation we collectively feel when the volatility is high. Psychiatrists might diagnose this market behavior as mildly schizophrenic.
In any case, I cannot definitively answer the question, but I can offer a thought. In times such as these, I counsel patience (not what I did yesterday). I suggest we all take a breath and watch what unfolds in the near term. You see, on the one hand, we have economic fundamentals improving daily, which bolsters our collective confidence. On the other, we have a perception of Europe collapsing, the two Koreas threatening war, an overheated China vacillating on the yuan, and an environmental catastrophe threatening the economy of the whole Gulf region and beyond, all of which injects fear into our collective thinking. At best, our collective market-oriented mental health is unstable. At worst …
Trade in the day; invest in your life …
