I awoke this morning to catch the following market move being played out.
These numbers were accompanied by the usual hand wringing and they did cause me to drop a long options position of mine since I was getting too close to the nasty part of the time decay curve. However, an options position is vastly different to an equity position and is designed to look at small perturbations in price action. If you were holding a portfolio of US stocks consider the chart below.
We have a market that starts bottom left and ends top right – which is basically what you want when you are a long equity investor. This raises the inevitable question of whether the Dow being down 200+ points is meaningful to you or is simple noise within a longer term trend. My observation is that for most the noise is very important since it feeds some inner demand to be considered to be in the action and this feed by a 24 hour news cycle that has to have something to say. You couldn’t really expect a headline that said …. today the Dow moved within its normal expected range so everyone go about their business. Such a headline would be correct but would not generate any perception of activity or excitement. Thoreau was correct when he stated that all men lead lives of quiet desperation and the noise many desire from the market is an attempt to compensate for that quiet desperation.