One of the many things we market players have had to get used to is a high speed chase for price discovery. It used to be the ‘slowness’ that defined market moves was a result of inefficiency or just a huge lag time for information flow. Skilled market pros could take advantage of the situation (and usually did at the expense of the retail player). Today, we can probably thank high frequency trading programs for the quick movements in price and the avalanche of moves up or down. But without any consistency, trend or momentum it becomes a guessing game, no different than playing in a casino or just flipping a coin. Is that any way to trade or invest? No, I didn’t think so either.
When prices move up and down at such a breakneck pace it requires less thinking and more action. Does that sort of activity make you comfortable when deploying capital? I sure am uneasy, preferring to find trends that will last longer than a few minutes or hours or even days. Take this week for example. When the markets re-opened on Wednesday we saw little participation, some early selling but lethargy most of the day, already low volatility and muted price action. Thursday was a different story, prices rose sharply in the first hour of action and stayed firm, but Friday was the opposite. The jobs report was perceived a positive yet was a lightning rod to selling. Actually, the am was setting up for a ‘risk off’ day.
In the pre-market the dollar was very strong, oil was off and breaking tepid support while gold was down very hard – and proceeded lower on the jobs report. Further, the euro was taking it on the chin, and even though the futures rallied on the good numbers it was short-lived. It appears some are still uneasy about being positioned in front of the big Tuesday election. For the past six weeks this has been a market under distribution, institutional selling. When that occurs are you going to get in the way? Is the reward worth the risk of getting run over?
While we may still be in a stockpicker’s market when the institutions are heading for the exits you don’t want to be caught like a deer in the headlights. The best action is usually to join them and leave the party for awhile until the market shows signs the big money is coming back INTO the game. Heading to the sidelines FAST is never a bad idea. As for the charts, this longer term (weekly) chart tells us the up trend is still in place for now, but we must be aware if the break occurs – much lower prices could be ahead.
