Down 309 Points, Up 552 Points…Fast Enough For Ya?

Let's not even get into "reasons" why the Dow went bipolar on November 13.

By Vadim Pokhlebkin Thu, 13 Nov 2008 17:30:00 ET

Not that we haven't seen markets like these before. Since at least September, volatility in the stock market has been off the charts (no pun intended.) Still, what we witnessed today (Nov. 13) was staggering even if you didn't have an open position. (God help you if you did.)

 

In case you've missed it, here's how it went down. On the morning of Thursday, November 13, the DJIA opened with a 104-point gap up. The direction of the gaps usually signals where the market really wants to go, so you'd think it was a bullish sign – but not today.

 

From that morning intraday high of 8386, the Dow then proceeded to drop 413 points – to an intraday low of 7973. Don't know about you, but that would have fooled me into thinking thatnow the trend was down – and again I would be completely wrong.

 

Because from that mid-day intraday low of 7973, the Dow rocketed upward 862 points, to close (whew, finally!) 552 points higher than it did the day before.

 

Let's not even get into "reasons" why blue chips went bipolar on Thursday. I'm sure you can find plenty of "explanations" from the media. Nothing wrong with those – they each probably make a very convincing case as to why blue chips did what they did. My only question is – how do these "post mortem" explanations help you trade?

 

Let me ask you – next time you see U.S. jobless claims jump like they did on Thursday, are you going to sell? Or, if you hear that "stocks are a bargain" (as they "apparently" were on November 13) are you going to buy? Or, how about this – next time you hear of a government bailout program "shifting its focus," is that bullish or bearish?

 

The answer is obvious: "Fundamentally"-based explanations of market action work great only in retrospect. (You know that already if you've traded long enough.) You can assign a "reason" toany market move after it's occurred. Try predicting them before they happen next time – now, that's… well, that's just rare.

 

The fact is, even the biggest bear markets have rallies. Here's a chart of the 1930-1932 bear market we've shown to EWI subscribers before:

 

 

Bear markets can fool even the best traders. To learn how to avoid being a casualty in these treacherous times, consider attending EWI's upcoming intensive trading course, How to Trade in a Fast-Moving Bear Market, on December 5 and 6 in Atlanta, GA. Details.