After an impressive open the final hour of trading saw the NASDAQ lose more than 100 points and the Dow lose more than 500 points. The selling was relentless at the close and completely shut down the morning rally after the Chinese cut lending rates. We continue to witness a very dangerous market were volatility will reign supreme. It would be nice to point to some positives, but the kind of selling we are experiencing now will take at least a month or more to recover from. Much like the Flash Crash of 2010 it took many months to repair the damage. We are likely to see the same here. Cash is king and remaining patient on the sidelines is the right course of action.
Last night’s plunge in Chinese shares certainly allowed the Chinese to lower their lending rates. Globally, stocks rose starting Europe then the US. However, after today’s close in US markets it will be hard to fathom the rest of the world to not follow the same path. The sidelines are a great place to be while the rest of the trading community fights over and loses the battle of bottom ticking this market. There will be many trading accounts blown up when all is said and done. Be the one who is left standing with buying power when this market does turn in our favor.
When we do finally have this market turn in our favor it will be the stocks holding up the best that will be what we are focusing on. Relative strength during times of turmoil is a great attribute for a given stock. It won’t be a matter of “if” we turn, it will be when. I am sure many are looking for this to be a doomsday event. Remember, the sky isn’t falling. The market undergoes re-pricing events throughout the course of history. This time is no different. However, be ready for when we do get the opportunity to get long the right stocks!
What a fun close. The time to be a hero is not now. Stay patient and wait for the right opportunities to line up.
