A big wave on Friday!
Nasty. But we’ve been saying for some time that the market is volatile, looking for bad news, then overreacting. The financial press always gives a reason as they want to appear authoritative, dispensing their wisdom to the great unwashed. Friday’s ‘reason’ was economic data on business activity and consumer sentiment. From Investing.com:
Dump now, ask questions later
Well, with headlines like that you could be forgiven for taking fright and dumping all your positions. But is it justified?
I’m not saying it wasn’t a nasty day; it was definitely nasty.
I went to bed after market open (I’m in Australia) quite happy that everything seemed stable – then when I woke after market close I am greeted with the ‘bloodbath’ headline.
Naturally, panic set in immediately.
OMG!! What happened? How much did it drop?
But was it a Bloodbath?
Not exactly. It dropped 1.7%. How many times has it dropped more than this in the last year? 15 times. The biggest was October 10 last year, when it dropped 2.5%. And statistically according to ChatGPT (who I am beginning to rely on to do the math I don’t feel like doing:
So, the last year has been absolutely average, with ‘bloodbaths’ occurring on average a bit more than one a month.
Obviously, we just need to get used to regular ‘bloodbaths’. Side note: While ChatGPT is improving, DALL-E, the image generator seems to be getting worse. Here is its version of the market on Friday:
Stock Market Clickbait
Which headline would you click on:
Market crashes!
Market pretty normal today
Obviously, the first one. Why would you bother reading something about the market being normal? You wouldn’t, of course.
But websites track every click on every article, where it comes from, how long people stay reading the article or if they just ‘bounce’ – everything is analyzed down to the last detail. And that’s how journalists get paid, or at least get to keep their jobs.
The inverted pyramid
In the days before websites, journalists used the inverted pyramid structure when writing news articles. This places the most crucial information at the very top. The headline delivers a concise summary of the key facts, immediately capturing readers’ attention. The opening paragraph then provides essential details by addressing questions such as who, what, when, where, and why.
Subsequent paragraphs offer additional context and background. This approach was especially useful during the print era, where space constraints often required cutting articles without sacrificing critical content. It also meant that people did not have to read the whole article to get the facts.
Nowadays, the headlines rarely have facts in them and are designed more to pique the curiosity of the reader, to encourage them to click.
Controlling your Mind
Hyperbole and hyperventilating are here to stay. We’ll have to put up with lurid headlines, we can’t stop them. What we can control is our own response: overlook the headline, don’t panic, look for the facts which will be buried somewhere after the first paragraph.
DALL_E’s version of an inverted pyramid
I kid you not. Here are the instructions:
Can you create an image, photo quality, realistic of the sphinx and the pyramids of Giza, but one of the pyramids is inverted.
Told you he was getting worse!!
Blog Survey
Last week I said that there would be a short survey about the blog, what you would like to see more of, less of etc. It was almost ready to go then Elementor (the web editor I use) upgraded and knocked everything out of balance so some parts of the website weren’t working anymore. Which meant that I spent Friday just getting it working again – and had no time to get the survey ready. Aiming for next week.
SPY Charts
I always find it amazing how accurate the charts are. Look at SPY; see how it came down almost exactly to 600 where we had already drawn in the possible support line. This was based on the high it reached on open / close on 11 November 2024 ($599.81) and how it seemed to be a significant level in the trading since then, frequently touching it on intra-day trading then reversing.
And now SPY has come down to close at $599.94 on Friday, only 13 cents away. I find it amazing that with the 500 stocks in the S&P 500 and over 13 billion shares being bought and sold on that day alone, that it can be this accurate. But it is. I just want to point out that if you check last week’s blog (and the few before that) it was already drawn in and identified as a possible support level. I am not drawing in lines after the fact.
It looks as though a sideways trading channel may be developing – a Darvas box, if you like, with an upper bound of 610 and a lower of 600. Will it? I think it probable, but we’ll have to wait and see. On the longer term chart we can see that it is back on the lower bound.
SPYG Charts
SPYG didn’t drop quite as much, but it was still nasty. As with SPY, it may be that another Darvas box is forming. Darvas boxes a really only a variation of support / resistance lines, but are sometimes good to draw in to let you see what is happening.
On the long term chart we can see that it is still in the trading channel, albeit heading to the lower bound.
QQQ Charts
QQQ also dropped rather a lot (2.2%) but it had been trending up since mid-January so it is only back to the level it was a couple of weeks ago. I’ve drawn in a possible trend line (the blue dotted arrow) but it is too early to call it as a real trend line (as in not enough data). However, if it holds that will make us happy.
On the long term chart we can see that it is still hugging the lower bound.
VIX Chart (Volatility)
The VIX has popped up a bit, but it is still in low volatility territory (below 20).
I thought I would look more closely at the VIX to see if we can spot any patterns in its waves. Here it is:
Last year it was having a little spike regularly every month, but I can’t discern any pattern since then. What do you think?
ITMeter
The week ahead
The big news this week will be NVDA’s earnings. In the blog of 3 February, we talked about it dropping 17% in one day, as a result of the News about DeepSeek – China’s answer to AI. Let’s see how it has been faring recently:
It has been trading sideways since the middle of last year. Since the big drop it has been trending up, but seems to be meeting resistance at the $140 level. It is still trading at the level it was 9 months ago. That doesn’t exactly look like a market darling to me.
So, we’ll watch and see what happens on Wednesday when it announces its earnings after market close. There is also GDP and consumer data on Thursday.
Headline this morning on Investing.com:
So, we’ve gone from a bloodbath to a rout. And the purchasing ‘mangers’ – is it Christmas or something? OK, picky.
The Futures
Positive at this time, but it is 11 hours to market open.
Fingers crossed for a good week!
And remember:
Trade the tide, not the waves
Heather
Q&A
If you have a question that you would like me to answer please enter it below:
12 Responses
Dear Heather,
Thank you for your weekly blogs as always and I enjoy reading them immensely. Your weekly blogs are similar to Berkshire Hathaway annual reports written by Warren Buffett. I am grateful and thankful.
Sincerely,
George Robert Henry
Thank you Gorge!
Heather,
It is nuts what the scammers are doing to books and audiobooks. Best of luck whatever you decide there. Maybe you can just sell your books as PDFs here?? I read everything on my iPad now…
Add me to the circle of readers who want to you know how much we value you sharing what you know. I mean how many of us would know a Darvas Box without you? Not many to be sure.
Good people are important in these times of so much thuggery, it is wonderful to know some people share what they know to be helpful. You found a repeatable method for success and you share it. It is noble! Thank you
HI Kate – thank you! AFter a horrible market day, when I logged in expecting to see some hate mail all I have is encouragement from my wonderful readers!
Thank you so much!
x
h
Have a great weekend!
thank you Kate!
Looks forward to your blog and perspective. Discovered your book about 3 monhs ago. One of the best I had read. It would be so sad if you have to stop your blog. The market this week is scary! It is hard to sit tight till either a death cross appears, or market recovers. No fun.
HI Mike – yes, I agree. Horrible week. Today was quite a surprise – after NVDA had such great results.
lets see what happens tomorrow and I’ll discuss it in the next blog.
h
I would like to agree with Larry’s statement. I appreciate and read your blog each week. I always look forward to your thoughts on all things market related. Thank you!
HI Erich
thank you for that, i really appreciate your taking the time to let me know.
Hope you are not too down about the last 3 days on the market 0 been a bit nasty!
h
Losing money on your books is a bummer. Books written by AI sound boring and perhaps inaccurate when using the Internet as a knowledge base. I don’t post but I do read your honest comments and analysis every week. It would be sad if you discontinue posting. I hope you continue to entertain and inform us.
Thank you Larry – much appreciated!
Re AI-written books – as you know I use AI, mainly to do technical stuff (much quicker than reading manuals!) but sometimes use it to check things I know about. Which is interesting – sometimes good, sometimes way off! But I reckon you can tell which ones are AI generated, its just a feeling that something isn’t quite right.
But thank you for your kind words – especially as we are having a pretty awful 3 days!
h