Market’s Down Big – Run for the Hills?
Today was a completely brutal day for the stock market. Particularly financials, they were hit the hardest. It’s interesting to see how psychology plays such a big role in the stock market. The ISM and Home Sales reports came out today — both better than expected. You’d expect stocks to rise because there’s more evidence that the economy is improving. Not so!
There are different strategies in dealing with a fickle market like this. If you’re playing the short term, like Anand likes to do, then shorting would be the way to go. Obviously, the markets are heavily reliant on momentum and right now, that momentum is clearly driving stocks down.
If you want to protect the gains you’ve made in the recent bull market run, you can buy put options. That’s a popular strategy for many folks who want to protect themselves from further losses in the market.
And there are people like me who look at fundamentals and see this drop as a buying opportunity to pick up some shares of good companies, cheaply. Of course, timing is incredibly important. I won’t be jumping in at the first drop but I will definitely use this time to identify some good companies that are getting beat up that look like good buys. I’m a bargain hunter in real life and that manifests itself for me in the stock market as well.
But the important thing to keep in mind is that, clearly, the economy is improving. Economic indicators should continue to show improvement in the long term and when the panic-selling mania is over, we are left with signs of an improving economy which should translate into higher profits for many companies in Q3.
The last thing I want to talk about is: Why is the market down today? Well, according to news sources, there’s “rumors” that there will be future bank failures. Uhhh…is that considered news?! This “rumor” is not really anything new — there have been and will continue to be new bank failures. That’s already a given. I think if people want to sell, they’ll give themselves any reason to sell, no matter how crazy, dumb, or ridiculous it is. It’s just an excuse for people who are worried about stocks dropping to panic-sell.
Here’s an excerpt from an article I read about the “rumor”:
“Some time midmorning, rumors came out that a large bank could be in trouble,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. “That’s all it takes to spook this market.”
The Dow’s drop virtually equaled a 186-point slide two weeks ago that the market later recovered from, sending stocks to their highest levels in almost 10 months. Dan Deming, a trader with Strutland Equities in Chicago, said it didn’t appear much had changed in the market since then, but investors have grown more nervous as stocks have pushed higher and that was enough to tip off heavy selling.
“It’s really more psychological right now than anything. The first day of September — the market shows some weakness and then it just kind of starts to feed on itself,” he said. “Everybody is kind of looking over their shoulder.”
Click Here for the full article.
Anyways, this just goes to show how unpredictable the market can be and how psychology and fear can drive the market down, even when there’s good news reported.
So the bottom line is: don’t panic if you are long and don’t be impulsive if you’re looking to short during a down market. Think about what your strategy is — are you investing for the intermediate/long term or are you just looking to play the swings. Keep your wits and invest wisely!
