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Markets Have Shifted Gears into Hyperspeed

Author: Bob Lang (info)
Website: http://trade-mentor.com
Posted: August 15th, 2007 at 3:06 pm EST
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If you’re not dizzy from all the volatility in this market by now, perhaps you enjoy fast rollercoasters. Buckle up, because the markets may give you that thrill ride sooner than you think.

We spoke recently about the reasons for increased volatility. The elimination of the uptick rule, credit issues, housing slump and the seasonally weak period were a few mentioned. Masking some of those reasons has been just a plain old reason to sell…because there are profits. Why not book some gains? Markets have been on a tear for a year now. The old adage, ‘you never went broke taking a profit’ is tried and true. While in this new age of the information society, internet, rapid-fire trading and technical analysis….the speed of markets have reached a new gear.

It’s completely true that markets drop faster and steeper than they rise. Just look at the last month of action and you’ll know what I mean. It was nearly a year ago that markets embarked on a journey that would take the Dow and SPX all the way to new alltime highs. That rise took nearly the entire year, including a brief interruption in early March. Recently, we’ve seen the markets cascade down in classic waterfall fashion, triggering selling at seemingly every support level. Not a positive situation from a technical perspective. Rallies have been sold quickly and news triggers more drops below the depths. Overnight risk is also an issue…not being able to hold positions overnight as you don’t know what shoe will drop next in this truly global market. One country sneezes and everyone catches a cold.

But this is new behavior for this market. This rally over the last year was bought up on every dip…and was proven to be good spots to buy. But that was in a more reliable environment with much lower volatility. More certainty allows players to step in buy without much consternation. The selling that has occurred lately has been pervasive and downright deliberate: of panic variety. Whether it’s credit worries or something else, until a clear flushout is seen the correction can continue, and the selling may accelerate into another higher gear. Buckle up, it’ll be a bumpy ride.

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