Divot
Investor
- Reaction score
- 5
I've skimmed quite a bit of market analysis this afternoon/evening. Ask ten analysts why the market sold off lower today, and you'll get at least 15 opinions. Their opinions - blame interest rates, oil inventories, whatever - are irrelevant. It doesn't matter WHY.
The important thing is WHAT happened today. Most markets had recovered from their 2-3 percent stumble earlier this month. They spend the first two days of this week wallowing around in light volume, right up against their previous highs. Then today happened:
The market - supply and demand - just declared that prices are high enough. Here's another way to look at the significance of today's shift: the volatility index.
Today was the green bar at the far right, and notice how tall it is. This was a huge spike in volatility - which means that options just got a lot more expensive. Options are, of course, a tool to hedge risk. Amateurs tend not to trade options seriously, rather, this is the heavy hitters. Now, there are equations to figure out what an option SHOULD be worth, Black-Scholes being one of the better known examples, but the reality is that good old supply and demand plays a big role as well. Put another way - just try trading options on the basis of what some formula tells you they should be worth... Good luck with that trading account!
Remember, bullish percents are (predominantly) around 70%. There's a lot of profits to be protected right now, and those that aren't hedging with options are likely to have itchy "sell" trigger fingers.
Looking at the TSP indices, it looks like all are still above the support levels of their 50 day moving averages. If they pause or reverse off the 50 day MA - I'm in! Support at that level will have proven itself three times, and the markets will likely still be on offense. If they crash through those blue lines... oh brother, hold on. Here there be dragons. If that happens, I'm already very protected by my current position.
Who cares WHY today's action happened, what's more important is the message available for those listening.
The important thing is WHAT happened today. Most markets had recovered from their 2-3 percent stumble earlier this month. They spend the first two days of this week wallowing around in light volume, right up against their previous highs. Then today happened:
The market - supply and demand - just declared that prices are high enough. Here's another way to look at the significance of today's shift: the volatility index.
Today was the green bar at the far right, and notice how tall it is. This was a huge spike in volatility - which means that options just got a lot more expensive. Options are, of course, a tool to hedge risk. Amateurs tend not to trade options seriously, rather, this is the heavy hitters. Now, there are equations to figure out what an option SHOULD be worth, Black-Scholes being one of the better known examples, but the reality is that good old supply and demand plays a big role as well. Put another way - just try trading options on the basis of what some formula tells you they should be worth... Good luck with that trading account!Remember, bullish percents are (predominantly) around 70%. There's a lot of profits to be protected right now, and those that aren't hedging with options are likely to have itchy "sell" trigger fingers.
Looking at the TSP indices, it looks like all are still above the support levels of their 50 day moving averages. If they pause or reverse off the 50 day MA - I'm in! Support at that level will have proven itself three times, and the markets will likely still be on offense. If they crash through those blue lines... oh brother, hold on. Here there be dragons. If that happens, I'm already very protected by my current position.
Who cares WHY today's action happened, what's more important is the message available for those listening.
