Weekend Review October 10, 2014

If I were walking along a railroad track and saw an express coming at me at 60 miles an hour, I would be a damned fool not to get off the track and let the train go by. After it had passed, I could always get back on the track, if I desired"  Reminiscences Of A Stock Operator

I’ve acknowledged that for over two years the market has made a mockery of market timing.  The past two years have dismissed statistical normalcy where modest 4-5% pullbacks never eroded further.  Every gap down brought a gasp and every hiccup brought hyperventilation as anticipation built.  Each modest dip was bought and V-shaped recoveries were the norm, not the exception.  By trying to sidestep the correction that would be the sucker punch to dip buyers I often felt like the sucker as the train rolled gently along.  

Even though there have been moments of foolishness as the market exerted maximum adversity upon the majority of participants, when you’re on the tracks and you see an express coming at you, it’s best to get off  even if what passes is merely a ghost train.  The tracks will still be there tomorrow, next week, or next month.  Unfortunately the market does an excellent job of conditioning and keeping the masses comfortably numb then surprising them with the unexpected just when the majority decide to stick their neck on the line because this time is not different, just another ghost train of which they’re now a passenger.  Trades become investments, accounts blow up, and itchy fingers that fired at will are suddenly leery of pulling the trigger again.

As a swing trader I don’t underestimate the effect of panic upon market participants.  Having felt the sensation on numerous trades gone south and hesitating like a doe in head lights instead of cutting and running, I’ve amassed many unpleasant experiences that have been difficult to override.   So now I try to be more anticipatory of scenarios where I may break instead of bend and ease off the pedal.  I magnify my unpleasant experiences upon the collective unconscious of the general market and anticipate scenarios that might lead to moments of panic such as this past week.

What this past week has exemplified is that gravely ill markets arise from sickly ones.  Symptoms may start off with a cough,  but when there is a confluence as the number of new lows vs. new highs begins to increase across a multitude of time frames from monthly through 52-Week, and the number of stocks above well watched moving averages across multiple time frames decreases, and intraday index volatility increases, a proper diagnosis is in order.  When the underlying fabric of the market deteriorates one never knows if there is a floor to roughly land upon or a trap door awaiting under the surface.

When the market does begin to crack and participants panic the ensuing discount mechanism of price can result in drastic reassessments.  A current FinViz scan for price percent change monthly shows over 2400 stocks down 10% or more and 800 stocks down 20% or more with many of these declines happening in one day.  Keeping too close an eye on the major indexes may lead to the proverbial forest for the trees and over look when the market become a minefield.  When the market does turn into a minefield it’s best to stand still and allow others to clear the way.

During these periods I find time is better spent away from the hustle of the game and on going outside a little more often and catching up on a dusty book or two, or watching spiders build webs and pondering what trading lessons do they have for me today.  It’s also important to review trades, adjust plans with increased knowledge and pay attention for a shifting of the tide, but it’s also important to surf a wave.