Late Night Market Overview: Part 1 - Recent Volatility in the Stock Market
Hey all,
I want to start this discussion by saying I know that there are a lot of night owls here on steemit. Being that as it may, I want to try out this thread called "Late Night Market Overview", where we can discuss stocks, bonds, futures, cryptocurrency, crypto futures, etc. I want to see where you all are with trading, what you want to be discussed in threads like this, and so on and so forth.
For this post, I wanted to focus specifically on current market trends. I will discuss the recent volatile of our precious stock market, how the Dow reacted, and potential reactions we could see in the near future. Please note: all that I will be discussing is purely my normative beliefs, and you should not take my words as investment advice. I do not know what the markets will do, and no one can ever predict that perfectly. Take what I say with a grain of salt and always do your own research.
The Dow Jones Industrial Average Declines
What happened?
On February 5th, the Dow Jones ended 1100+ points below it's open. We experienced "The largest single-day point drop in history" as a result of this (ABC News). Some even quote that Monday was the worst day for markets since August of 2011. What exactly happened on February 5th for our markets to suffer as bad as they did? The truth of the matter is, no one knows for certain. The strongest argument that I support is that this was a healthy pullback. Since the beginning of 2018, we have not really experienced any market pullbacks as many stocks were riding all time highs. While investors love to see their investments on the up and up, they most certainly cannot go up forever without a pullback. What we experienced on Monday I believe can be broken up into two parts: one in succession of the other.
1. A healthy adjustment
2. A panic sell
The healthy adjustment actually started last week when we initially started to see a decline in our indices. While there were a few investors ahead of the curve, understanding that this could be a large selloff, many of us believed it to be a natural weekly trend - which is still a strong argument. Stocks go up and down in value constantly and we hope to net gain when it's time to close our portfolio. As the weekend neared, it became more than that. When markets opened Monday, news had spread that we could be in a period of steady decline. People started selling part of their portfolio to mitigate any risk. As the day ventured forth, panic selling also started to incur. Some of my closest friends even started calling it "the start of the next recession". As most times, panic selling induces more panic selling. We noticed this early this morning when the Dow opened 4% lower than yesterday, but ultimately corrected and ended 2.33% up.
The Dow Jones Industrial Average Corrects
What happened?
As I mentioned earlier, the Dow Jones started today off by dipping 4%. This was most likely caused by people who decided to panic sell part of their portfolio last minute and had a sell order set for market open. Literally minutes later, the Dow started to correct and was constantly fluctuating between green and red all day. So why did we end higher than where we ended Monday? Part of the reason we saw a rise in value is that it was time for some big-league quarterly earnings reports:
"On Tuesday, major companies reported another round of strong profits, with General Motors, BP, Allergan, health-care companies and others beating analysts’ expectations." - The Washington Post
Another reason we might have saw such a correction is because we had many weak sell-offs but stronger buy-ins. It's funny, people love when they go to the mall and see 25% off of their favorite pair of jeans, or buy one get one free sales at their favorite store, but when markets "go on sale", everyone loses their head. As I eluded to earlier, the 1100 point decline we saw on Monday could be a large correction, returning to a more natural rate of growth. Intelligent investors saw this as an opportunity to buy back investments at a slightly cheaper price. It is potentially because of these strong buy-ins that we ended in the green.
What Now?
What if what happened Monday is one to put in the record books and never to be looked at again? What if today was just a fluke and we see more bearish trends? What if... you get the point. Anything can happen. Sure we can run multiple technical analyses to see where the market is headed, but we have to run psychological analyses alongside of that. There are people on both sides of the fence right now, waiting to see who will win out. I personally have no current stance on where I believe the market will go for the rest of the following week. I don't believe there is enough information yet to tell which way we are headed. My advice is to read up on any news that comes out, what the US government is doing to protect our markets, and just to be weary that there are fragile people in the market - a good portion actually that has influence over which way the market sways. Be smart. Be patient. Know what is happening before you make up your mind in either buying or selling any position.
And that's all I have!