Traders need to check this out
The corelation of the top 250 stocks in the S & P 500 has reached 81%…the highest in a long time…the all time high was 88% in the Wall Street Crash in October 1987 when in a single session the Dow plunged 22% !
This means that 81% of the time the stocks move in the same direction….the historical average is 30%….Now this is happening as a result of a herd investor psychology playing out its macro fears and hopes in herds…selling and buying enmasse…in testing and unnerving times like these
The CBOE Vix,the Volatility Index too remains constantly high at over 30
This is a clear and strong statistical support that you got to be real courageous..read as foolish…to take a contrarion stance for the short term….The Trend has to be your Friend in the Short Term…but what Trend !?
Traders,who cannot live without Trading, need to set small stop losses,even if they risk being triggered quickly…unpredictable swings are now part of your trading life…17000 to 16000 then back fast to 17000 and then in a blink down again to 16500…Phew !…Salute the Trader who can make monies here !…whatever be the approach !..Technical or Fundamental or whatever !
It is rational sense to maintain Liquidity to preserve Capital when Momentum and Sentiment are Weak and Volatile and the immediate future is nervous and uncertain and there is no clear visibility…more so as global blues cloud over you,threatening to gather into a Storm…Valuations won’t work for you in the short term
In such situations try playing markets for the short term on Valuations !….it will be frustrating as Markets have a mind of their own and Valuations go unheeded
So don’t ask me to predict where the Sensex or Nifty or specific scrip will end the day today…or tomorrow…or day after…or a month from now…the risk is too high to hazard any guess
But the Long Term…. 3 to 5 years….. yet holds potential
Last year end I made the Sensex call of 16000 for this year….I yet see some downside in the immediate future,largely on Global Blues,particularly the worsening PIIGS Crisis in Europe…Trichet,the European Bank President has tripped the Euro last week by confessing he fears the worst
So continue to stay Liquid…if convinced we are bottoming out,then ease into the markets…don’t buy wholesale…go retail,deploying 10% to 20% of equity funds available…then some more later on…it’s a rational and sensible strategy with Long Term in mind
We all have sight…but how many of us have Vision !?
We all have Cash…but how many of us have Conviction !?…for the Long term ,that is!
My Bullish Long Term Vision and Conviction remains well intact
2 thoughts on “Why Traders cannot ignore Volatility & Momentum & Sentiment as the 81% S & P Stocks Corelation screams out”
Great Advice 🙂