- TheStockBandit.net - http://www.thestockbandit.net -

Changes of Market Character, or Just Emotion?

It has been an interesting couple of weeks, to say the least!

The slow and steady uptrends that traders had grown accustomed to came to an abrupt halt on February 27th, as key uptrend [1] lines were broken to the downside and the indexes started their first meaningful corrective phase in nearly 8 months.

The question on the minds of many is whether this marked a real change of character for the market, or if emotions just made a return and are riding high all of a sudden. My answer to that question is a resounding yes. Yes the character has changed, and yes emotions are playing a big role.

The change of character took place when the uptrends were broken with such ferocity. Not only were the point losses dramatic, but the volume was tremendous as sellers flocked to the exits in mass quantities. To me, that marked a major change of character from the “buy all dips” mentality that had paid bargain hunters so well for so many months.

Emotion was indeed running high on February 27th to contribute to such a massive decline, but since then it has played a continuing part in how the markets have moved. Traders have been timid to scoop up bargins out of fear that they might catch another wave of selling right in the teeth. This was evident in the low-volume bounce after the initial drop, and these emotions were confirmed [2] when the first bounce failed with the second decline on Tuesday of this week. Even Wednesday saw plenty of emotion, as the March lows were penetrated with another triple-digit loss on the DJIA, only to be followed by a dramatic reversal of almost 200 points and a close in the green.

Here’s a look at the charts of the NASDAQ and S&P 500 indexes, which are two of the averages I watch the closest:

(Click chart to enlarge)

(Click chart to enlarge)

All in all, the character has changed and it’s still an emotional time for traders. That makes right now an excellent time to stay picky with trades while waiting for more of the dust to settle. We saw a huge change of character two weeks ago, and since then we have seen a failed rally and some bounce attempts, but neither attempt at the upside has managed to produce a meaningful recovery yet.

At TheStockBandit.com, we’re holding a few positions on the short side but have been reluctant to add new potential trades to our Trading List while we wait for this short-term volatility to diminish a bit. When price is swinging wildly in both directions, it makes for a much tougher environment to initiate new positions and find traction in them. Once this short-term choppy action plays out a bit further and things become a little clearer, we’ll be jumping right back into the market with some swing trading [6] candidates to capture a piece of the next move.

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com [7]

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]