Meandering

Is it possible the market is flat because of the State of the Union Address? Is it flat because of the Fed tomorrow? Is it flat because it is just taking rest?

I’m not sure what the best answer is. One prediction for 2006 that I did not hear very often was that there would be more volatility in 2006. With January winding down it is safe to say 2006 is starting out with a little more volatility than in 2005. While I do not expect Japan-like volatility, Barry Ritholtz’ point about too many months having gone by without a 10% correction looms over my thinking.

A fast violent correction of that magnitude would be better than a three or four month rolling over to get that point. Historically, slow capitulation is worse for the market than four day panics.

I repeat this notion often on this site and when talking to clients. The idea is to really embrace and understand, at a time when you are not at a heightened emotional state, that selling into panics is the wrong thing to do the vast majority of the time. Selling (reducing exposure) when the market has rolled over slowly and people on CNBC are justifying the decline is a good time to sell.

A flat market like today is a great time to study this.

4 Comments

  1. The problem, of course, is that once or twice (in a lifetime) when selling into a panic WAS the right thing to do….

    …Not to be too dark about it.

    Reply
  2. Usually…if CNBC has reasons for the market going up or down…I’ll go opposite.
    g

    Reply
  3. I am a little confused:
    “slow capitulation is worse for the market than four day panics.”

    “Selling (reducing exposure) when the market has rolled over slowly…is a good time to sell.”

    So is a slow rollover a bad thing or is it a good thing because it allows you time to make a non-emotional decision and sell?

    Reply
  4. Jack Straw?

    The Jack Straw?

    Anyway, you have it exactly right.

    Reply

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