OPENING POSITION

December 2012

Whenever we approach the end of the year, I am always tempted to forecast what the next year will bring. But this year my desire to do so seems more pronounced than usual, and that could be due to 2012 being an extremely important election year in the US as well as the number of crises that have been taking place all over the world. Maybe it’s just me, but 2012 seemed to be full of economic and political turmoil as well as wildly swinging markets. Maybe it’s typical for an election year, but I just can’t remember a market ever behaving the way it has of late.

By the time you read this, the election results will have most likely been determined. Regardless of the outcome of the election, we will continue to be haunted by the wild swings in the markets. Whether it is in the form of a flash crash or negative news releases, the reality is that today’s markets are dominated by high-frequency traders, and that changes the character of the financial markets.

Going into 2013, my focus will not be on the economic health, or the lack thereof, of the global markets. Instead, my focus will be on trying to figure out how retail traders can survive these volatile markets. They fall so hard and fast on the mention of any negative news and skyrocket on any positive news. Market movements based on news releases is nothing new, but it’s the amount and speed at which the markets move that tends to be challenging for traders. All you have to do is take a look at charts of QCOR, ALGN, MRVL, and APOL to understand what I am talking about.

Usually, when I observe a change in the way the market behaves, it means it is time to make a few tweaks to my trading methodology or system. But this time, it involves more than making a few tweaks. It requires reeducation and the need to understand a market that is very different from what I am used to. This is something to reflect on as the year draws to a close.

Wishing all of you a wonderful holiday season and a prosperous 2013.

 Jayanthi Gopalakrishnan, Editor

Originally published in the December 2012 issue of Technical Analysis of Stocks & Commodities magazine. All rights reserved. © Copyright 2012, Technical Analysis, Inc.

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