Be Calm and Mind the Gap

Thus far this year every market hiccup has been met with hyperventilating and each dip has been bought in short order punishing early shorts and exiting longs. With this recent gap down the psychology has once again become a battle of: is this it or buy the dip? Thinking in terms of the market exerting the most pain upon the most participants, what scenario might likely cause this? Given that buy the dip has become conditioned, what scenario might cause maximum pain: dip buyers returning, shorts sitting sidelined, and the market continuing to erode comes to mind. But it's difficult to see this with conviction when at a moments notice the Hand of Bernanke can sweep across the market like Maradona's Hand of God.

Through 2013 I've noticed I've become conditioned to this and to ignore market breadth and divergences because they haven't really mattered. Each FED kerfuffle has been met with FED assurances as they continue to inject the market with steroidal liquidity where the long ball going yard has trumped the underlying basic fundamentals of market mechanics and structure. What this has reinforced to me is that market structures modify and that not everything works all the time. It has also made me more mindful that when it comes to the utmost rudimentary basics of market participants, not much has or will change for regardless of what the influence upon the market is –there will always be something –because it's the reaction to it and recognizing the nuance of it and being able to plan accordingly that will continue to matter.

What this has also affirmed is that the market is a constant testing ground of one's style and method, process and discipline, especially when something is not working in expectation or according to historical precedent. There's the constant lure of style drift or chasing the tail mentality to mold to the flavor of the month and what is working today.

Be calm and mind the gap and think in terms of not what this means about the market, but what this means about you as a participant in the market and what you do from here.