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2008 - the year of the Trader
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2008 was not a year to be investing in the stock markets. It was a year when the stock market crashed. Those who were invested in long stock market positions (thinking the market would go up) did not fare well.
But how about those who trade rather than invest? They had a great year in 2008.
The current average daily trading range in the S&P 500 is 3.38%. This volatility is the highest we have ever seen in the US stock markets. Those holding short term positions have had ample opportunities to make profits and get out of the market.
Bespoke Investment Group wrote about this. Here is a chart from that article.
Volatility was a story in itself this year. Tracked by the VIX, the bull run of from 2003 to 2007 would occasionally have spikes in this index to the 30-35 range. This would usually coincide with a short term bottom in the market. It is sometimes known as the fear index.
Well, 2008 certainly caused a great deal of fear in the stock markets. The VIX spiked over 80 this year on two separate occasions.
Both of those high spikes in volatility also coincided with tradable bottoms in the S&P- See late October and late November. I’ve revised the chart to show the SPX as well:
Additionally, relative lows in the VIX have also marked short term tops in the S&P 500 index. See early November.
If you are paying attention to what I’ve written I’ve described market volatility extremes over a ONE MONTH SPAN. This is not an investor’s stock market. This is a trader’s stock market.
With the high intraday swings in prices and the extreme movements in the volatility index, this is only a market for the stout of heart and large of checkbook.
It is very easy to lose your money in a market like this. Keep your positions small and your stops tight. And let the VIX help you.
I’ve written that I do not like the S&P right now. In that post I did not discuss the VIX. Writing this today, I am more convinced than ever that new money should not be put into long market positions. Get short or get out. The VIX is at a low, which in this market means that we are at a market top.
2008 taught us some things. Let’s not forget the lessons going into 2009.
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