Shaken But Not Stirred – What is the Stock Market doing to you?

The famous Bond catch phrase used when ordering a Martini has an underlying meaning.  It refers to the fact that Bond has been surprised but will suffer no long lasting side effects from that surprise.

The news this week has been focused on the pull back on the most of the global markets in Europe and in the U.S.A.  The notable exceptions have been Brazil and India.  Bloomberg reports “Investors Shaken as S&P 500 reversals ignite Volatility”.  But should we be worried?

Shaken or Stirred?

The reversal in the markets has been somewhat aggressive with a 9.8% drop in the last 17 trading days.  Historical analysis shows us this is by no means a catastrophic event although it could feel like it if you own a particular stock that has fared worse than that, as many stocks have.  So, we do know there has been a shake in the markets, but taking a look at the long term picture we can see this is just a blip.

It makes a lot of sense to look at the market over a longer period to evaluate if there are any long term trend changes occurring.  Major Bear Markets are the cause of serious loss of investment returns and can wreak havoc on industries, people lives as the business cycles changes from investing and growing to employment cutbacks and divestment.

We are not in this position yet.

Long Term evaluation of the SP-500 Market Direction October 2014
Click to enlarge – Long Term evaluation of the SP-500 Market Direction October 2014

As outlined in the book “How to avoid the next stock market crash”, the Bear Market signal has not been activated.  Neither has the “Shock Event Warning”.  The red and yellow bars at the base of the chart correspond to the technical signals on the timeline.  When the red bars occur this signals an impending down move (Bear Market), when the yellow bars occur this signals serious selling in the market that could indicate an acceleration of the current trend down, or a bottom selling frenzy.

So, if Bond were a stock market he would be shaken but not stirred.  As most market participants do not have the nerves of Bond, the fact they have been shaken may lead them to be stirred in the future.  Never forget, the market is made up of people selling on emotional fear and greed.

Are you perspiring?

In Casino Royale there is a famous scene

Le Chiffre: “You changed your shirt, Mr Bond. I hope our little game isn’t causing you to perspire.”
Bond: “A little. But I won’t consider myself to be in trouble until I start weeping blood.”

 

As always, perform your own market analysis and form your own opinions and actions, you are responsible for your success.

2 COMMENTS

  1. article is very helpful for a novice like me. I have been keeping an eye for the conditions mentioned in your article. It is another way of scoring the stock market. It does look like a longer term trend following is better than short term indicators in that it reduces the whipsaws considerably and hence improves adherence to the strategy

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