Many traders and invest dream about timing the market. If you could correctly call tops and bottoms you would never lose, right? Sell at the height of a bull run, get in at the bottom of a bear move, and you’re set for life.
While it is possible to get your timing right from time to time, nobody can correctly call a top or bottom on a regular basis. There are too many emotions involved that impact us psychologically. Sure, charts and technicals are very helpful at identifying reference points like high/low volume areas and zones of interest – but they’re not a magic eight ball.
Some traders are starting to think that the Fed holds the magic eight ball, but do they? Is it a coincidence the market bottomed out at the end of September following some very dovish Fed comments, or perhaps topped last this week after a rather hawkish tone from six Fed governors? (I highly doubt that the Fed is happy with this version of Pavlov’s Dog.)
Let’s take a look at the market action. This past week had many traders scratching their heads and wondering if the big rally (SPX was up 25o points) was over so soon. I’m not so sure the rally is over, but with big dips on three out of five days last week, some worry was bound to re-appear, even after volatility had been smashed down from the high 20’s in late September to a paltry 13%. However, talk of a potential rate hike gave the bulls the shivers, and after such a huge run in a short time, who would blame anyone for taking some profits, especially with talk of rate hikes? As a result, the VIX is showing some fear once again; it’s back in the 20’s and showing signs of a surge to come.
We could certainly lay some blame on the market’s weak August and September performance at the feet of the Fed. You can argue that the market was the “tail wagging the dog,” and that it caused the Fed to back off rate hike talk based upon the stock market, slowing global growth, or China’s economic woes.
This past week was a different story altogether. Some Fed governors were very bold in their rhetoric about a rate hike by the end of the year. The last Fed meeting of the year is in a month, and with so much data coming out before then, it seems rather foolish to make a prediction, but it seems the market cares little about what makes sense.
Rather than timing the markets and trying to sell at a top or buy at a bottom, your best bet is to play the trends once they are established and confirmed. There will be plenty of time and opportunity to profit from either side of the trade, but only if you’re willing to be patient and wait for it.
Image Copyright: Oleg Dudko