Markets have fallen with the speed and velocity of a sky diver coming to earth from an airplane. What goes up, must come down I guess. There were multiple triggers for this latest decline that once again has ripped the heart out the average investor. How many times can your head be slammed against the wall before you say enough is enough? The emotions and fear were front and center this week, market gyrations just breaking the spirit of the most optimistic trader. Even the bold words of action by the Fed couldn’t halt a big slide. We did, however see three big up days post-fed meeting, so that may be a positive sign.
There is an old saying with markets: you take the elevator up and the window down. Simply put the markets go down faster than they go up, profits are generally bigger and quicker on the downside. No denying the charts have inflicted some major damage, but is it beyond repair? It’s too soon to tell but given the supportive Fed accommodation we can certainly mark this week’s lows as an area to start. So much has been talked about recent of high frequency traders and their presence. There is a is a great article from nanex that captures what they seem to be doing to the emini trading area. Some have pointed to the broken economy, the weakness here and the contagion that is Europe. Their recent stance of banning short selling is just wrong and only temporarily halts a slide. This has never stemmed the tide of sellers and won’t do it this time either.
Volatility creates opportunity. How is this possible? The fear of markets puts the scare into stockholders and we see the panic. You think mom n’ pop investor felt comfortable seeing four straight 400 point days in the Dow Jones Industrials? Hardly. We see many flock to safety – raising cash, buying bonds and now to buying gold, which hit an all-time high this week over 1,800 an ounce. Could you blame anyone for selling with the horrible news and circus over the last couple weeks? With the high levels of fear we often find stocks will fall too far below where they should be. Just like fear is a short term condition so are cheap prices. You won’t find a Potash under 50 for too long, nor will you find a Cummins Engine around 81 either when after earnings the stock roared to 112 (it has fallen 35% in 3 weeks). Stocks like Google, Union Pacific and Qualcomm rarely fall into your lap at ridiculous prices. It is often hardest to buy stocks when it feels wrong. Stalk these and other names. Take it from me – buying here is how portfolios become great.
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