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How To Deal With Chaos In The Market

What a week.

Each day it seems we are setting some kind of record, whether it’s in the percentage of stocks closing X-amount at new lows, volume flows, sentiment, etc. This is a historic time and for those involved, one that will be hard to forget. With massive swings in stocks, bonds, and commodities, emotional responses begin to take hold and chaos can ensue. Earlier this week Aleksandar Kocic, managing director at Deutsche Bank (DE:DBKGn), shared a note on LinkedIn (NYSE:LNKD) about chaotic movements in the market and through the de-risking process that this type of heavy downside selling pressure promotes, analysis of the resulting price action can be extremely difficult.

“If I throw a ball to someone at the other end of the room, they’ll be able to catch it by anticipating its approximate path. A small error in their judgment will have a small impact on the point at which the ball lands. If the ball were replaced with a balloon, blown up and released, it would sputter and dart around the room in a chaotic path; its trajectory would be impossible to anticipate. In chaotic systems (balloons) everything is moving away from everything else. Chaos is deterministic, but carries an essential instability to changes in initial conditions: The present determines the future, but the approximate present does not approximately determine the future.

Chaos is destruction of the future -only what’s simultaneous counts. It reflects disregard for the long-term effects of the present actions -last week’s becomes irrelevant/inconsequential in light of yesterday’s headlines. Market, community, society lose sight of its future and, without a clear vision of the future, the present cannot take off.

Chaos promotes arbitrariness & shortsightedness. It scatters time into a sequence of disposable presents. The future is degrading into an optimized present. Chaos is simultaneity & irresponsibility at the same time. It is the perfect crime perpetuated on time.”

In times like these, future prospects, future cash flow, future earnings, future innovations – none of it matters. The markets and its participants get extreme tunnel vision on just the three inches in front of their face, the rest be damned. These environments will eventually present an opportunity for the bold and profit to the smart. The timing is what will matter and the ability to manage risk will matter more. Focusing on what you can control can make all the difference. We don’t need to get degrees in epidemiology to navigate these market trends but we need to respect the price action that results from the whipsaws caused by the virus and the emotional response it elicits in the consumer base. Chaos can take hold but chaos is temporary.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

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