This Chart Sums Up the Last Two Weeks of Volatility by Market Authority
This picture, courtesy of Ed Matts at Capital Management, sums up the market activity of the past two weeks:
The black hole at the end is accurate because, for the first time in a long time, there doesn't seem to be a specific cause for the selloff. What started as momentum darling profit-taking is becoming a short-term correction for the rest of the market. While some may point to the NFP jobs data economic news, I can't recall the last time that in-line economic data caused such an extreme market reaction. Now, investors are suddenly concerned about a market that may have gotten ahead of itself. Back in January, Wall Street's median S&P forecast for the year was 1950. They may be right and we still may close higher, however it never happens in a straight line.
While we never know how far into the abyss the market may fall, we can change our own approach. We can tighten stops and trade smaller size.
In the past few years, the time to buy was when the market looked ready to fall into a black hole. The volatility confuses both bulls and bears, but makes for a welcome opportunity to scale into new positions for nimble accounts. "Sell on rips and buy on dips."
If you are making buys into the abyss, make sure to lighten up on rallies and sell-stop at the low of the day.