Market Proves Again that it is Irrational


Not that we have seen the last of market volatility for the year, but the recent “correction” has shown us three things. When the market has a particularly outsized gain or loss the pundits come out of the woodwork to pitch their explanations. Usually, it’s pretty hard to tell myth from fact. What story is real vs what story just sounds good enough to get TV face time. Not so with this recent hissy fit. There was a consensus that fears of a trade war set the market off on its downward trajectory. The new  Director of the National Economic Council, Larry Kudlow came out and explained on Fox Business News, that this was not the start of a trade war with China. It was the start of negotiations with China to end their trade abuses. Including but not limited to theft of our intellectual property, technology and onerous tariff’s on goods imported from the U S. The DOW saw its biggest single-day point turn around ever.

This is good because knowing that the market is focused on a single issue, not an overall fear of the economy misfiring, should clear the way for a solid earnings rally in a few weeks.

The second thing we have seen, not that this is new, is that the market grossly overreacts to any news. Despite the pledges from the algorithm traders that their computer-driven trading is good for the market, we have instead seen an algorithm based sell off that grossly overstates the potential issue. This from

“… the size of the market correction dwarfs the size of the tariffs’ impact by nearly an order of magnitude. Indeed, we’re talking $2-$4 trillion (in stock market devaluation) vs a few hundred billion, (economic damage from presumed tariffs).”

And third, this market will shoot first and ask questions later. Regardless of day to day direction, it is no indication of future results! We are currently in a trendless market, looking for a solid reason to go up or down for the smallest of reasons.

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.


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