Just When Traders Think They Have Things Figured Out…
01/12/2016 6:00 am EST
Last week, traders experienced the worst weekly start to a year in the history of the market. However, they didn’t see a sharp increase in bearish sentiment, so Joe Fahmy, of JoeFahmy.com, shares his take as to why and what to do now.
The stock market is a master manipulator. It conditions us to think a certain way over and over and over until we are convinced of a pattern. Then, just when we think we have things figured out, the market magically changes character. Keep in mind that a pattern can continue for a long time before the market eventually changes.
The reason I bring this up is because something very interesting happened last week. For the past few years, every time the market flashes warning signs and starts to decline, we have seen a huge spike in fear (based on many sentiment measures). Last week, we experienced the worst weekly start to a year in the history of the market, but we didn’t see the same sharp increase in bearish sentiment.
I kind of understand the reasoning behind this. We have been conditioned to be a little complacent because the market’s buy the dip pattern has worked for a long time. In other words, I think traders have been sick of getting stopped out of stocks, raising cash, and buying protection only to see the market rip right back in their faces.
So what do we do now? It all depends on your time frame and if you are a trader or an investor.
By Joe Fahmy, Trader and Blogger, JoeFahmy.com