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How the Market Works

Sucker Punch

Posted by kdadmin on March 27th, 2015.

As if trying to prove the principle of gravity, the market started from a recent low on March 11, at 2050, careened up to nearly 2105 with the Fed’s “no change” announcement last week, and fell back to earth at 2052 yesterday, briefly hitting 2041 midday.

Sucker Punch

It’s exactly these sorts of false positives that sucker punch the unwary investor. Amateurs would likely have bought the Fed’s announcement near the emotional run up and found themselves holding the bag just a few days later. Professionals likely bought the previous dip and sold on the Fed’s announcement. A 50 point swing may not seem like much, but it’s still about a 2.4% move, and these sorts of moves add up.

We still have a tenuous earnings season ahead of us, another potential Greek bankruptcy, and escalating conflict in the middle east. In other words, I’m glad we sold our stock overweight in SPY at 2120 four weeks ago and am patiently waiting for the next opportunity. Stay tuned.

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