Here in the UK in the 1970’s one of the most popular TV comedy series was one called Dad’s Army. The series was set during the second world war, and followed the exploits and adventures of the Home Guard which was established to protect the country in the event of an invasion. One of the principal characters was Private Jones, whose catchphrase whenever some problem arose was to run around shouting ‘Don’t Panic’…..Don’t Panic’ and this perhaps best encapsulates the current sentiment in equity markets over the last few days. As a significant investor in equities myself, I am writing from a personal perspective, and my view, as always, is don’t panic. Second, I am always somewhat nonplussed at the images presented by the mainstream media of traders with heads in their hands, looking dejected and downcast whenever there is a bout of market volatility. An image suggesting these players only trade one side of the market!
For investors this is not a time to panic, as we are witnessing another correction, and the reason for this view is simple. To date there has been no selling climax and until there is, the markets will continue to remain in a longer term bullish trend. Indeed yesterday’s price action was symptomatic of a shake out of the weaker players, with the depth of the lower wick to the candle on the daily chart for the YM emini (and other principle indices) telling its own story. Volume of course completes the picture, with yesterday’s ultra high volume confirming the stopping volume and consequent buying off the lows of the session.
This, of course, begs the question of whether we are going to see a repeat of the V shaped recovery of earlier shakeouts? And the answer is: quite possibly, and certainly based on the volume profiles of the last few days appears increasingly likely, and indeed in early trading this morning, the YM has already climbed higher, along with other major indices, with the FTSE 100 also moving back to recover strongly. In addition, and more significantly, the volatility indicator was also triggered on the daily chart, with the consequent likelihood of the price action reverting back within the spread of yesterday’s candle.
Without doubt yesterday was a dramatic day, but also a long overdue shakeout and correction given the extent of the congestion in equities and indices. Furthermore, the effect of yesterday’s price action depends on what point you entered the market as a longer term investor. For me, it was back in 2009, when the buying climax arrived following the 2008 sell off, and I have been holding investment positions ever since.
The market turbulence of the past few days can be painful to watch, but the motto is simple and I echo dear old private Jones – Don’t Panic…Don’t Panic, and if you have any doubts whatsoever, then I would suggest applying volume price analysis to your trading and investing will help to calm the nerves and keep emotions in check! We may indeed see a further shake out in due course, with some further buying at this level, before a consolidation and recovery in the longer term upwards trend continues once again.
And finally of course, as an Emini intraday trader, it’s simply a question of being on the right side of the market.
By Anna Coulling
Charts from Quantum Trading and NinjaTrader