At The Close  |  FEB 2010

At The Close by John McKinnon

At The Close by John McKinnon Do you know how you will react under specific circumstances? Do your emotions keep getting in the way? Sometimes, the market is described as a living organism with a personality all its own. In an effort to understand this elusive quality, many traders rely on technical indicators to monitor and predict the state of the market. Others utilize models for measuring the microfundamentals of individual stocks or the macroaspects of economic trends. Experienced traders usually develop their own customized mix of indicators and/or fundamentals that works for them. However, these same traders will often tell you that the indicators don’t always do what they’re supposed to do; that is, they don’t always cooperate. MARKET ACTIVITY Despite our best efforts in calculating complex patterns, we still refer to market activity mainly in emotional terms: • Abc stock soared on new product sales: Euphoria • Investors stampeded for the exits on Xyz’s dismal earnings projection: Panic • PQR hit it out of the park with its new executive appointment: Cheering crowds; power; a winner! • The hedge funds that shorted were crushed and shredded when the stock unexpectedly reversed: Annihilation, uncertainty, fear The news media makes an attempt to put a brave face on the market’s behavior — a reason behind it. To hedge their bets, some Internet sites actually have two stories ready for print, one if it’s an up day, the other if it’s down. More often than not, the behavior is inexplicable.

by John McKinnon