Stock Market: One of the Most Volatile Months In History

Another volatile week for stocks.  Traders simply did not want to put out large orders for fear of getting run over.  But, introduce fear (from longs and shorts) in thin liquidity and price levels have a tendency to “overshoot”.  Prices are taken to extremes and then snap back like an elastic – in both directions.

I have never seen individual securities with such “sketchy” bids and offers.  No one wants to be trapped in a big move, and because no one wants to be stuck in a big move, big moves occur because there is a rush for the exits (for both longs and shorts) as traders grab what liquidity they can.  It has made for some very interesting trading days.  Volume may still be high in some securities, but traders are “order-cancel happy” at the moment.  And with good reason – this market is on very shaky footing.

I will get to a brief analysis in a moment, but this week was a major reminder that no matter what time frame we trade on, as individuals we don’t need to fight the direction of the market.  Today there were large swings, and bidding into falling prices was a stressful time to say the least (or shorting into a rally).  At times like this hopping onto momentum is the best option – because there is no solid rules for how far something can take you into the negative at this point.  Just as this is true for day traders trading daily swings there is no reason for swing traders to buy as prices fall.  Most individuals traders transactions will not affect the price in the aggregate, and thus there is no reason to predict a reversal – we can simply wait for it to start.  And with the volatility right now you could be in that trade for a nice swing.  All said, these markets are shifting on a dime, be awary and don’t get tied to a trade or a direction.

Shifting focus.  The daily chart still has a down trend.  We saw new swing lows, this week, moving below the “flash crash” levels.  We also moved below the February lows – a major swing low.

I am not bullish till 1134. Not this this would turn my attitude completely, but at the moment that is a level I am watching on the upside.

A drop below 1040 would create a new low on the S&P 500 and warn of a further correction.  The S&P closed out the week at 1089.41.  So both of these levels are a ways away, but we moved close to 15% in May, so 40 points in either direction is nothing.

A more detailed analysis will be upcoming in this weekend’s newsletter.  If you aren’t getting it – you should!  It is free and you can sign up on the right.  It is sent out on the weekend.

Also, there’s only one week left to download Robert Prechter’s free 10-page market letter. Our friends at Elliott Wave International are featuring the free download through June 7.

The free issue, titled “A Deadly Bearish Big Picture,” contains recent research and market analysis that goes beyond the news headlines to give you urgent,independent market forecasts. Prechter’s market outlook has changed dramatically since February of 2009 when he informed his Elliott Wave Theorist subscribers to turn bullish.

The markets have turned more and more volatile by the day, with huge market swings spanning hundreds of points! It’s time to prepare yourself.

Get your FREE copy of Prechter’s latest research through June 7 – Download the Theorist now.

Cheers,

Cory Mitchell, CMT

~Something is only worth as much as someone else is willing to pay for it.  Period.

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