TraderAssist® The Flash Crash May 6, 2010 The MarketTell(TM)
The Flash Crash May 6, 2010 is nothing compared to Black Monday*. Yet, isn’t it amazing how they (the financial press and the pundits) begin to point fingers. I wonder, if anyone would be casting dispersions if the 1000 point move had been to the upside. A mere 10% decline intraday that recovered a Fibonacci 61.8% of the decline, only to close down 3.82% and the headlines are over the top. Here is a few examples: The EU is coming unglued, Computerized trading is at fault, U.S financial reform is a new form of socialism, Previous employees from rating agencies employed by major banks caused real estate bubble / bust plus my favorite, Short selling speculators are to blame.
The investment public always hears the proposed reasons for the market move after the market has made its move and the explanation will always make sense to the untrained observer. It is always 100% clear in retrospect. However as a trained market observer it is not the news itself that is important but the market’s reaction to the news that is The Tell*. On the day (Sunday May 2, 2010) the EU announced the Greek bail out, the markets rallied on Monday, so it is good news but on the next market day the market declines as the market did not see the bail out as being adequate. The news event can always be worded to fit the action of the market in hind sight and if these interpretations of the events were used as a trading system they would be batting 100% accurate, never hitting a losing trade. In the face of all the perceived negative news, the flash crash is similar to other massive one day declines in history; it is the end of a decline not the beginning of one. Besides knowing our market history, the *MarketTell(TM) is bullish and our * MarketMapping(TM) for 2010 remains up for now.
*Black Monday refers to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong, spread west through international time zones to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average (DJIA) dropped by 508 points to 1738.74 (22.61%). *A tell in poker is a subtle but detectable change in a player’s behavior or demeanor that gives clues to that player’s assessment of his hand. A player gains an advantage if he observes and understands the meaning of another player’s tell, particularly if the tell is unconscious and reliable. Sometimes a player may fake a tell, hoping to induce his opponents to make poor judgments in response to the false tell.
* MarketTell(TM): In bull markets, the market climbs a wall of worry and ignores bad news; traders buy sharp declines caused by emotional reactions to the perceived bad news. Likewise in bull markets, traders sell into the perceived good news to take advantage of the emotional reaction to perceived good news. In bear markets, good news is ignored and prices will decline on the expected positive news event and recover on the perceived bad news to feign a bottom being made. *MarketMapping(TM) Confluence of historical cycles that map the up and down trends for each year along with change of trend dates (COTD). Get our alerts real time, add us to your list here: Great and Many Thanks
Jack F. Cahn, CMT Information provided by TraderAssist® is in good faith, but it is not guaranteed. Success at trading demands recognition of the facts that errors and uncertainly are part of any effort to access future probabilities. xml version=’1.0′ encoding=’%SOUP-ENCODING%’