Recognizing an Abnormal Market

 |  Includes: DIA, QQQ, SPY
by: Roger Nusbaum

Many segments of the market have been abby-normal of late and it is important to understand this.

This is not about bear market magnitudes or whether there will be recession, depression, famine, pestilence or anything else.

No matter whether you are a Roubinian or a Kudlowite it is important to realize that the current velocities of market action in certain segments is not what the market normally does, and any trades you might make (more specifically any big portfolio shifts) would be done so at a time of abnormality.

Going with the crowd during times like this, and right now the crowd is selling, is often a mistake. If you need to sacrifice one stock in order to sleep, then you probably should do that, but there are parts of the market that are trading like they are permanently broken (no one will ever need oil again, some emerging countries will be out of business by the end of the month, the NZ dollar is going to zero) which of course is not the case.

Periods of abnormality (fast declines) have happened before, will happen again and to be clear one is happening right now.

I am not 100% at all times guy. I'm a huge believer in defensive action (when SPX crosses below its 200 DMA as a trigger point), but not in the middle of what could be described as a panic 11 months after the peak.

Periods of abnormal trading often end with a reversal of some sort. If you think this time is different then maybe you should get out now, but if you were smart enough to have had a defensive strategy in place before things got this ugly you have a much better shot of facing this without emotion.