How does a trader navigate such an environment? The safest thing traders can do is shorten their horizon. Trade on hourly time frames or shorter. Many recent moves only last several days. It takes training and discipline, no doubt about it, writes Jeff Greenblatt.
Remember last week we talked about a guest on one of the morning business programs tell listeners it’s a great market unless something crazy happens? I’ve channeled Lord Rothschild, suggesting this market environment is like the late 1930s.
Most of us can’t relate to the 30s, but we were around in the 1960s, another era with geopolitical and domestic issues. Should anyone be surprised when something crazy happens to the market?
It is a dereliction of your trading or investing duty to think otherwise. Yesterday the market was at it again. Another story broke, this time concerning the president’s former attorney.
The market took it personally and the futures took it on the chin right after the regular close. This one doesn’t register as a mini black swan just yet. Then again, the plot is only beginning to thicken. All one has to do is take a quick scan of the Drudge Report page to see all of the crazy stories percolating out there.
Since last week, the market seems to have weathered the Turkey storm.
Believe it or not, the Dow Transports (DJT) made a new high above January so it was confirming all the good action we’ve seen recently.
Part of the market even shrugged off the Cohen news. Until today. The Transports stalled and within an hour and a half to the close, the Dow (DJI) was down roughly 80 while the NASDAQ was up 24. This is the same type of divergent/rotational market we’ve had for months.
But we are now dealing with yet another time window. Wednesday marked the 144th (Fibonacci) trading day since the Dow peaked back in January.
The news event from Tuesday afternoon manifested immediately and right on schedule almost by magic. It slowed down a market that was gaining momentum again.
Where do we go from here? The second half of August is usually one of the slowest trading sequences of the year. One exception was 2015 where the Dow bottomed in late August and that’s what got us into this cycle, with the Dow peaking 611 days from that low this past January.
It’s all related as this cycle is now 144 days from that high as stated above. Nevertheless, the higher probability between now and Labor Day is for a few paint drying sessions. Once the calendar progresses into September which is statistically no friend of the stock market, expect more crazy events to happen.
The last thing I want to do is come here and discuss politics. The stakes are very high in a nation that is more divided at any time since the 1960s.
Expect a rough ride from Labor Day right into the election in November. Not everything will impact the market but anticipate some events will.
As I scan the domestic and international landscape I could name three or four items that will impact the market if the worst-case scenario were to develop.
What we’ve learned over the summer is to expect the unexpected. Who anticipated the Facebook (FB) earnings debacle? Since it got hit on the 618th day off the 2016 bottom it has attempted to rebound but once again back near the low.
Who anticipated the Turkish lira getting hit so hard when it did? Obviously, there were signs but not many could anticipate it would manifest exactly when it did.
The takeaway here is while many of us can connect the dots to the issues we are following and see the potential for the market to be harmed.
Not many of us are aware of any black swans that could rise to the surface. That is the nature of beast, they are not expected.
Longer-term investors must draw lines in the sand to lock in profits earned over weeks or months. It helps to understand the cycles of the market. There are three types of people in the world. Those who make things happen, those who watch what happens and those who say what happened?
It is okay to watch what happens as long as you put in your stop losses. But certainly, do not be among those who end up surprised by what happens over the next trading season.
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