Don’t Get Too Excited – Monday’s Market Action and Its Interpretation Depending on Timeframe

Short sellers are hopeful. We had a down day in the markets on volume (meaning more than an average number of shares traded hands – higher volume moves are thought to be more meaningful).

However, before they get too excited they have to realize that we could fall another 3-5% here and still be “on trend”:

We’re still on trend (weekly SPY)

And yes it is funny how a 1% drop had people (even me sometimes) scrambling for the exits back in 2011 and 2012. 2013 Has definitely conditioned people to “stick with it” a bit more. So there is a good chunk of reasoning from a behavioral and recent historical perspective why sellers should not get too eager here. notice on the daily SPY chart that price went down to the top of the most previous base and “found some support”:

Daily SPY chart at “support”

Tomorrow the market could pop, at least initially. If sellers really are taking hold, then a rally tomorrow or the next day will be sold aggressively (big investors need to sell on rallies otherwise their large selling volume might crash the stock!).

Lesson

The lesson from this moderately pointless banter about the markets is this – what is your plan?

• If you are buy and hold, then you likely do nothing with today’s news (or any news for that matter).
• If you are a long term trader, or call yourself that, then it’s likely today’s move means nothing but could mean something.
• if you are a short term trader, perhaps you bought today at “support” because over the past 15 months, doing that has worked out well for a trade.

If none of this means anything to you, maybe you’re the better for it (and there are plenty of studies that show just that!). Simply understand that, depending on the type of risk management plan your money manager has in place, today’s developments have varying levels of meaningfulness – from not meaningful at all to something arousing suspicion.

Note: this article is meant for educational purposes only and not meant to be “advice.” You get advice from me if you sign an advisory agreement with my firm and become a client. The stuff you get here at my non-commercial site is education ok?:)