The Deipnosophist

Where the science of investing becomes an art of living

My Photo
Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

09 May 2010

Last week's market action: prologue or dénouement?

Equity markets decided to put on their own show of fireworks, two months ahead of the calendar. And what a show it was! At one point, the Dow Industrials dropped by ~1,000 points, its largest ever one-day point drop.

In light of that crazy action, you are told to "Use limit orders!" Please recall my post, Market Volatility, Liquidity, and You, in which I point out the primary difference between order types:
Market orders assure an execution, but not a price
Limit orders assure a price, but not an execution

● And neither type of order protects your portfolio from the shenanigans floor specialists can, will, and do play, especially during "fast market" conditions, such as occurred on Thursday and Friday. (Please re-read that post for more understanding re this topic.)

A brief recap below of my market scenario and what actually occurred:

US$ rises powerfully (if ephemerally, in a world of fiat currencies), in a flight to safety. Correct, to date.
Interest rates rise in the US, possibly globally. Initially correct, but subsequently incorrect. (A global flight to safety bid US Treasury prices higher, yields lower.)
Commodity prices pressured by a rising US$. Correct.
● Share prices of commodity producers under pressure. Correct.
● A ferocious, even "hellacious" price decline in equity markets. Correct, in its initial phase.

Investors anticipate events, not react to them. As such, you likely want to know what think will occur next, so I hope to see you on Investment Poetry, where this post continues, with specific recommendations and follow-on discussion.
-- David M Gordon / The Deipnosophist

Labels: , ,

who's online