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I've been involved in several high-intensity meetings in the past few days, as you might imagine, because the selling probably isn't over.
Normally, I'd be very concerned – but in this case I'm not – because the onslaught is entirely driven by technical trading, as opposed to the more important underlying fundamental picture that leads to clear, sustainable profits over time.
Still, you've probably got a number of questions on your mind…
Q: Is the Selling Over?
That depends entirely on two things: (a) the computerized programs that drove the Dow down more than 1,500-plus points in the worst single-day fall in market history have to stop selling, and (b) the Fed has to stay out of it.
The former is pretty straight forward. The markets were selling off in a relatively orderly fashion until the last hour, when computers took over and sent the major averages into free fall. I don't have all the data just yet, but this is usually consistent with risk arbitrage programs reaching pre-programmed limits or some complex balancing between positions. Either way, it's so fast a human can't keep up… or stop it.
The latter is all about the Fed. Last week Team Yellen noted that inflation was on the uptick and that average hourly earnings rose 2.9% in January. That prompted "position" traders to reassess the Fed's next move as more hawkish and to get ahead of that by selling, which added significantly to the computerized pressure already building.
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In the scheme of things, the markets are still up an average of 17.5% over the past 12 months as I write this – so this really only took about 5% off the top. It's also worth noting that trading desks didn't report any major snafus, which means the markets themselves took this in stride.
The real damage, as usual, is to investors' psyche – present company excluded.
Q: Could It Get Worse?
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean, and he's also the founding editor of Straight Line Profits, a service devoted to revealing the "dark side" of Wall Street... In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.