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Small investors battle bungee-jumping traders in dizzying Wall Street donnybrook

Written By | Apr 5, 2018
small investors vs. bungee-jumping traders

Bungee-jumping in New Zealand. (Image via Wikipedia entry on bungee-jumping, CC 3.0)

WASHINGTON, April 5, 2018: These days on Wall Street, you can never predict how the trading action will turn out until the 4 p.m. closing bell. In an epic battle that’s been raging since February, traditional value-based small investors battle daily against bungee-jumping traders. The result? Wild, epic swings up and down in stock prices create dizzying, whipsaw swings in widely followed stock averages.

The widely followed Dow Jones Industrial Average, S&P 500 and NASDAQ suffered epic beatings in Tuesday trading action, the bloodshed extended well into Wednesday, leading averages lower still. Yet late that day, buyers started to sneak back into stocks, whipsawing a great many stocks back into positive territory. MarketWatch covers the numbers game.

On Wednesday, the Dow Jones Industrial Average recovered from a 510-point intraday loss, at its session low, to finish up about 230 points, or 1%, to 24,264.30 The S&P 500 and Nasdaq gained 1.2% and 1.5%, respectively.

“The dramatic turnaround helped the Nasdaq return to positive territory for the year. The S&P 500 finished safely above its 200-day moving average for a second straight session, a positive sign for long-term momentum trends.

“Extreme volatility has been a hallmark of equities lately. So far this year, the S&P 500 has had three times as many sessions with a 1% move than it recorded in all of 2017.”

More surprisingly, Thursday trading action took off from the opening bell. After a few heart palpitations, the bulls took over where they’d left off at Wednesday’s close. MarketWatch takes the action from there.

“The Dow Jones Industrial Average DJIA, +1.03% rose about 350 points, or 1.4%, to 24,611. The benchmark for blue chips is attempting its first three-session win streak since the three-day period ended Feb. 26, according to FactSet data.

“The S&P 500 index SPX, +0.72% was up 27 points, or 1%, to 2,671, led by a 2% gain for energy and a 1.7% climb in the materials sector as crude-oil futures rallied. Only the real estate and utilities sectors, considered defensive, were trading lower.

“Meanwhile, the technology-laden Nasdaq Composite Index COMP, +0.57% added 68 points, or 1%, to 7,110.”

For some reason, pearl-clutching MSM fear mongers and banner scare headlines pumping the “Trump Trade War” earlier this week suddenly gave way to more rational observations. Chief among these was the understanding by at least some that Trump is negotiating, not igniting a “new” trade war against China and other tariff-happy miscreants.

As the President himself noted in an ironic (but true) Wednesday treat, the so-called trade war was over long ago. And China won. That was a refreshing bit of candor from The Swamp, and it echoes reality.

Read also: Bullish or Bearish: Stocks and bonds tough to gauge for Q2 2018

The ongoing China-driven trade war is actually a long-term phenomenon

The Chinese have been screwing our companies for years, co-opting our advanced technologies and outright stealing American R&D and competitive trade secrets. Something’s got to give. And Trump is the first president in over two decades to confront this blatant international thievery.

The MSM and financial media alike are engaged in anti-Trumpism 24/7. However, the reality of this situation rarely surfaces in the news. That, of course, is the point.

Short-term, yes, there’s bound to be some pain on Wall Street and across the fruited plain. But if Trump and his trade negotiation team score even a partial success, both American industry and workers across the country will directly benefit. An added plus: our seemingly perpetual balance of trade deficit may significantly shrink.

But that’s tomorrow. As for today, we find stocks once again driven by bungee-jumping traders and their supercomputers. Averages dropped from their early peak. But, as we write this around 1 p.m. ET, the DJIA is heading back up toward the +300 mark, in excess of 1.2 percent. Both the S&P 500 and the NASDAQ are up nearly 1 percent.

It’s impossible to know where we’ll end up, however. So small investors: hold onto your seats.

How do small investors play against those bungee-jumping traders and their high-speed computing toys?

Clearly, nearly any stock small investors buy in this kind of environment could turn against them within minutes after purchase confirmation. The same thing might happen if these small investors short a stock: it might perversely start to go up rather than down.

In other words, buying or selling right now is a crapshoot. Volatility is simply too high out there right now for more than a quick in-and-out trade. You might have a better short-term chance flying to Vegas and playing the quarter slots.

We’ve made a few brief moves here, have reduced out portfolios in size and snugged up a few positions. But by and large, we’re about 40 percent cash right now and have chosen to wait most of this craziness out.

Whoever guesses right about what happens next and plunks a fair bit of change down on the Wall Street table will probably make an enviable chunk of coin once things settle down to relative normalcy. But a small investor’s chances of pulling this off at this point are no better than the slots.

The stock market at the moment seems to be mostly a game for returning high-frequency traders and their supercomputers. We small investors can’t afford such tools, computing power or bandwidth. So it’s best to remain partially invested in some dividend paying stocks. Alternatively, try stable preferred stocks and/or like-minded ETFs. But othereise, just stay put. New adventures can work against you right now.

Small investors hoisting the Jolly Roger and making impetuous moves here might very well end up buried at sea.


Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17