Are You a High Frequency Trader or a Long-Term Investor?

 In 1987, the portfolio insurance derivative based traders, that had seduced the pension funds of the US into believing they could guarantee against a loss exceeding 5%, not only wrecked the pension fund assets in that historic decline, but also caused extreme misery on those of us that professed to be long-term investors.

There is very little comparison with today's market and that of 1987, as that market was very overvalued then and today's market is CHEAP, but the point is that the same "breed" of gimmick traders all ran for cover on the same day, and when they did, they convinced many of the so-called "long-term investors" to run along with them.  We've discussed before how on that day in 1987, the VXO first crossed the "magic" 44 level.  It wasn't the low point of the correction, but it marked the beginning of a classic terrific buy zone.

Let me illustrate this a little differently to see if our/your emotions are geared to think like a short-term trader or a long-term investor.  Using the S&P Mid-Cap Index, you can see the action of the "market" in 15-minute intervals in the chart below.  Now remember, those that are involved in high frequency trading that see the orders right at the source directly from the floor's computers are many multiples faster than shown below.  Those computers operate in milliseconds, but for us mortals, we see this kind of action.

Click on chart above to view larger image.

There was no relief after the debacle of 8 trading days ago, and "here we go again" was my first impulse yesterday...and then of course, the headlines this morning aren't helping.  Furthermore, we've mentioned that with the big burst in volatility recently, we expect the next 3 months to show a pattern of up-and-down emotional market moves.  So today, you have to really determine who you are.

With our historical barometers remaining at extremely bullish levels, we are long-term investors!

Click here to read today's full Market Comment.

Don Hays

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