Trading the Stock Market Yo-Yo Effect
ABC News reports that oil is heading lower and Barrons wants you to buy any of ten supposedly undervalued stocks. Falling oil prices drag stocks downward and the prospect of higher US interest rates as early as next month scares emerging markets. And all this while stocks rise and fall. Unlike long term investors who look to rationalize the market, traders make money trading the stock market yo-yo effect.
Years ago we wrote about trading high volatility and low volume. That was in 2010 as the market was still struggling to recover from the 2008 crash. Here is a sample of the thinking at that time.
trading high volatility and low volume in today’s stock market should come with a warning, “kids, don’t try this at home.” certainly many hedge funds are currently sitting out the market volatile moves. the sorts of economic and political indicators that the people who manage over a trillion and a half dollars in assets watch seem a bit crazy these days. although leaders at the canada summit agreed to austerity measures it is uncertain how soon and how much and where such fiscal cutbacks will occur. the final shape of financial services regulations is not yet clear. although asia seems to be leading the world out of the recession the exact size and shape china’s future growth prospects is also unclear. the fact that hedge funds as a group lost nearly twenty percent of their invested capital just two months ago has taken the edge off of many traders’ zeal. the fact that folks are trading high volatility and low volume is a function of few traders willing to commit their funds to the market and the lower liquidity that goes with low volume. technical analysis can be more risky when numbers are smaller making the pure technical traders wary.