When Markets Are Down
February 20, 2008
By Greg Sushinsky
It seems that a lot of traders and investors miss the point when
talking about the markets. Traders often make scornful comments
about information which holds significance for value investors, such
as fundamentals, and likewise long term investors make snide
comments about the foolishness of fast trading. Short sellers seem
to live for finding troubled stocks, while these stocks’ shareholders
sometimes accuse those same short sellers of causing the problems
with the stocks. Options and futures traders sometimes have
themselves so hedged, straddled and locked in, over and out that
they not only can’t explain what side of a trade their on, they’re
sometimes not really sure. Add the technical statistical gals and
guys reading their Fibinaccis and their stochastics, throw in a few
day traders who buy and sell in a Wall Street nanosecond by the
seat of their pants, and you have a lot of what amounts to market
noise, if not babble.
When markets are down—and they are still down—the major
indices such as the S & P 500, the NASDAQ, and most of the rest,
including the supposedly outmoded yet sometimes venerated Dow, it
might be important to look at whether there is anything worth
listening to in the noise, if there’s anything worth gleaning from it.
While all the noise, shouting, and activity appears to be
sometimes contradictory and sometimes completely confusing, it’s
worth listening to, sifting through, and carefully finding out a few
things. What seems to be noise is actually the actions, comments
and thoughts of all stripes of participants who make up the market’s
activity. And it merits paying attention to. Of course, if you’re
Warren Buffett, you can say flip things like, “There is no such thing
as a stock market.” But if you’re a value investor living in Des
Moines, Iowa, with a mortgage on your house, worrying about
sending your two kids to college and scraping up free cash to invest
in the market, you’d better know there’s a stock market. It’s different
for Buffett; he buys companies and moves markets. You can’t.
Remember that the markets are comprised of everybody who
participates. It doesn’t mean you have to trade or invest the way the
do, but it’s important to have some understanding of what’s going
on, of what others are doing, because markets are not only
dynamic, but heavily interconnected. When an institution trades a
large block of stock, it moves the market a bit. When several do, the
markets may lurch. When short sellers slam a stock, this has an
impact, too. If you own that stock, even though short selling may be
abhorrent or immoral to you, you need to understand what and why
those short sellers are doing and how that affects your trade or
investment. To do otherwise, to blithely say, “that doesn’t affect
me,” is like being in the middle of a football game but not paying
attention to the 350 pound lineman charging right at you. It does
affect you.
One thing professionals try to do is read the market. They are not
trying to read tea leaves or do anything mystical, and in most cases
it is not an ego trip. It is purely pragmatic, often defensive. Smart
professionals know damaging loses are even more devastating than
positive trades, stock picks or investments are beneficial. So they
all are wary, they all don’t want to be caught on the wrong side of a
trade or have a long position in some stock that’s just getting
murdered, for whatever reason. Retail investors—and even retail
traders, should do well to adopt this attitude. Save the bravado for
someplace else.
So what are recent developments telling us about stocks? Well,
this credit thing hasn’t worked its way fully through the system yet.
More banks are reporting surprises, which is today’s parlance for
writedowns. Institutions are wary of making big bets on stocks.
Earnings are still flattening out as all this tangible negativity
continues to work through the financial system. Downgrades of
earnings and stocks are meaningful, they show the direction is, if not
still down, not yet up. Charts and fundamentals are often saying
virtually the same thing. Experienced traders add their wary,
intuitive wisdom that says we’re going to re-test the lows. These is
classic and historically true market pattern, though they may vary in
particular behavior, they are seldom untrue. Don’t fight the markets.
February 20, 2008
By Greg Sushinsky
It seems that a lot of traders and investors miss the point when
talking about the markets. Traders often make scornful comments
about information which holds significance for value investors, such
as fundamentals, and likewise long term investors make snide
comments about the foolishness of fast trading. Short sellers seem
to live for finding troubled stocks, while these stocks’ shareholders
sometimes accuse those same short sellers of causing the problems
with the stocks. Options and futures traders sometimes have
themselves so hedged, straddled and locked in, over and out that
they not only can’t explain what side of a trade their on, they’re
sometimes not really sure. Add the technical statistical gals and
guys reading their Fibinaccis and their stochastics, throw in a few
day traders who buy and sell in a Wall Street nanosecond by the
seat of their pants, and you have a lot of what amounts to market
noise, if not babble.
When markets are down—and they are still down—the major
indices such as the S & P 500, the NASDAQ, and most of the rest,
including the supposedly outmoded yet sometimes venerated Dow, it
might be important to look at whether there is anything worth
listening to in the noise, if there’s anything worth gleaning from it.
While all the noise, shouting, and activity appears to be
sometimes contradictory and sometimes completely confusing, it’s
worth listening to, sifting through, and carefully finding out a few
things. What seems to be noise is actually the actions, comments
and thoughts of all stripes of participants who make up the market’s
activity. And it merits paying attention to. Of course, if you’re
Warren Buffett, you can say flip things like, “There is no such thing
as a stock market.” But if you’re a value investor living in Des
Moines, Iowa, with a mortgage on your house, worrying about
sending your two kids to college and scraping up free cash to invest
in the market, you’d better know there’s a stock market. It’s different
for Buffett; he buys companies and moves markets. You can’t.
Remember that the markets are comprised of everybody who
participates. It doesn’t mean you have to trade or invest the way the
do, but it’s important to have some understanding of what’s going
on, of what others are doing, because markets are not only
dynamic, but heavily interconnected. When an institution trades a
large block of stock, it moves the market a bit. When several do, the
markets may lurch. When short sellers slam a stock, this has an
impact, too. If you own that stock, even though short selling may be
abhorrent or immoral to you, you need to understand what and why
those short sellers are doing and how that affects your trade or
investment. To do otherwise, to blithely say, “that doesn’t affect
me,” is like being in the middle of a football game but not paying
attention to the 350 pound lineman charging right at you. It does
affect you.
One thing professionals try to do is read the market. They are not
trying to read tea leaves or do anything mystical, and in most cases
it is not an ego trip. It is purely pragmatic, often defensive. Smart
professionals know damaging loses are even more devastating than
positive trades, stock picks or investments are beneficial. So they
all are wary, they all don’t want to be caught on the wrong side of a
trade or have a long position in some stock that’s just getting
murdered, for whatever reason. Retail investors—and even retail
traders, should do well to adopt this attitude. Save the bravado for
someplace else.
So what are recent developments telling us about stocks? Well,
this credit thing hasn’t worked its way fully through the system yet.
More banks are reporting surprises, which is today’s parlance for
writedowns. Institutions are wary of making big bets on stocks.
Earnings are still flattening out as all this tangible negativity
continues to work through the financial system. Downgrades of
earnings and stocks are meaningful, they show the direction is, if not
still down, not yet up. Charts and fundamentals are often saying
virtually the same thing. Experienced traders add their wary,
intuitive wisdom that says we’re going to re-test the lows. These is
classic and historically true market pattern, though they may vary in
particular behavior, they are seldom untrue. Don’t fight the markets.
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| Financial Articles by Greg Sushinsky |
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