Stock Market in a Crisis

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This is what to expect in any crisis this week or for that matter during any week while central banks are tampering with the financial markets. There is no market. Regardless, investors and traders from amateurs to seasoned professionals are still buying and selling as if this was a normal market. The same trading tools that were developed for use in a free markets are still being used as a basis for making trades. So, if a crisis situation develops, short positions are taken and all kinds of bearish bets are made.

Most of the volume in the market still takes place in trades which last from a few seconds to perhaps one minute. Very few long term positions are bought and sold. The long term positions are what actually determine the direction of the market. Without much of this kind of volume, manipulating sucker traders is a piece of cake.

So, here comes a crisis. Traders everywhere reason, “This is it.” They short in the morning. It looks like they are right. Central banks buy to slow the decline. The market stabilizes. Friends of the Fed who are part of the wink and nod system buy derivatives and the squeeze the averages back into the green by the end of the trading day.

Does this sound like a broken record? Of course it does but it still works. It doesn’t work as well as it used to. One of these days it will stop working but that time is probably not here. The most dangerous time to short a stock is at one of these crisis moments.

I don’t know how the new military tensions are going to be regarded by the financial marketx. But if there is a sell off what I just described is likely to play out.

Before long corporate earnings will start dropping as well as GDP numbers. It looks like the bottom will fall out from under the U.S. economy before the stock market collapses. I have been basically in cash since 2013. I have been trading and investing since 1968. I know better than to trade in a rigged market.

About Fantasy Free Economics

James Quillian is an independent scholar and economist.

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