During tumultuous times in the market, I have a habit of waking up every few hours to check futures quotes. You can imagine my glee when I awoke at 3:30 a.m., picked up the IPad and saw that Dow futures were down 250, the Euro had plummeted and talk was once again of the pessimistic variety. Needless to say, I didn’t go back to bed and my first words of my morning were restricted to four letters only.
A lot of experienced market prognosticators today have been expressing their sense of dismay and surprise at how difficult this market has become. I don’t know if what we are experiencing is the symptom of a failing economic mechanism or merely a cancerous cell that is contributing to the overall problem. The difficulties that come from days such as today cannot be understated enough, however. They not only prove devastating to portfolios, professional and retail alike. But they serve as a means of deteriorating confidence in the system itself further. It becomes a self-reinforcing cycle of non-participation and liquidity gaps that create further volatility.
If I look back on Tuesday during the last hour of trading, I could not see one single item that begged of me to reduce exposure. The warnings were anecdotal at best. Investors are helpless against these types of violent gaps down after seemingly bullish foundations are established in the marketplace.
All one can do is react to the situation in as beneficial a manner as possible. I outlined in my morning thought that I would wait until the last hour of trading to make a decision to liquidate or hold tight. I jumped the gun, after seeing the persistent weakness throughout the day only get worse with two hours left in the trading day. I liquidated positions during the last two hours of trading, ending the day with a 100% cash position.
I had an investor contact me today wondering what my next move would be? I couldn’t answer the question. A sign that I should probably step back until I see concrete information that will keep me from getting whipsawed yet again.
I rarely do chart reviews during the week. However, the current situation is critical enough to warrant looking at the two indices that matter: S&P 500 and BKX.
click chart to enlarge