Saturday, October 3, 2015

The Only Guarantee

Friends often struggle to understand why I normally get up by 5AM each day.  The primary reason is that my "body clock" is genetically set for it.  The professional reason is that I want to check the foreign markets before U.S. stock markets open.

I can save my clients a little money by using "market orders" which execute when they hit the market, regardless of price.  The only time I have a really solid grasp of the buy or sell price is when the market first opens.  (During the day, anything can happen, and I might have to use other types of more expensive orders.)  To predict opening prices, I rely on the futures market.

One rule-of-thumb is don't rely on futures until 9:29AM, just before the market opens, especially if there has been any breaking news.  Yesterday, early futures indicated the Dow would gain 109 points when it opened.  At 8:30AM, the disappointing jobs report was released.  Futures promptly dropped to a loss of 100 points at the open, a 200 point reversal.  When the market did open, it actually dropped 258 points.  However, when the market closed at 4:00PM, the Dow had GAINED 200 points, a 450 point reversal.  It was wildly volatile, the biggest upside reversal in four years.

It was a typical example of the stock market doing the only thing it is guaranteed to do -- it over-reacted!