Around 11:00 AM Eastern time yesterday moments after hitting a new all-time high of 5995.75, Nasdaq futures started falling and didn’t stop until they had fallen 2.5% from that recent high….all in less than 2 hours. Our phone lines lit up and emails were pouring in. “What’s going on? Who is selling? Should we buy it? Flash crash? Fat finger? Am I drunk?!!!!!” Markets fall all the the time but it still seems to throw people into a panic when it happens quickly. Worse than that when people can’t see a clear reason why a market is moving quickly, their anxiety blows up like a SpaceX satellite launch.
So here’s “why” the Nasdaq fell yesterday (From Bloomberg: “The weakness occurred as traders circulated a note by JPMorgan quant strategist Marko Kolanovic that cautioned investors on the risks of record-low volatility in the equity market,”.
Yup… a note from a well know strategist (who has been very bullish) combined with a recent record high and pending GDP figure the next day caused a wave of tech-stock selling that did not effect the Dow but did bleed into the S&P and collapsed the Nasdaq. That’s it. A note from JPMorgan was the catalyst for 2.5% selloff. If a butterfly flaps its wings at just the right point in space/time…
This illustrates one of my favorite topics. Market moving news does not matter; or to put it more bluntly, who cares why a market moves?!?! The only hing that matters is, it did move. When a trader puts on a trade, it is always in anticipation of a move one way or the other and armed with the knowledge that no one is always right, you control the risk you take. Knowing why a market moved changes precisely nothing about the outcome of a well planned trade. All it does is reinforce unhealthy thoughts such as “if it wasn’t for (fill-in-the-blank), I would’ve been right.” The problem with that kind of thinking is, “fill-in-the-blank” happens all the time. There is no space or time for an anecdote here, but think of it this way; the next time you get upset about a trade that was profitable but turned against you after some unexpected news, try to remember how happy and smart you felt the last time a losing trade was turned into a winning trade by a piece of unexpected news. Why something happened is the wrong question to ask…all you need to know and accept is what happened. Now stop calling me….