No surprise from the large market drop today. If this was a surprise to you, you need to read our prior blog entries. If you understand the market situation, you should have made lots of $ today.
The best way to understand is from the "quant" large % upward shift in the US markets today after the European "announcement" about the 16 banks. There are two ways to understand:
First, the currency markets (all stock trades are nothing more than currency trades for now) involve people who react to news and help to set currency valuations. Computers cannot do this, only people with a limited reaction time. A quick education in Forex will help you with this.
Once a person reacts, even mistakenly, to a news event, then sometimes the computers/algorithms take over quickly to trade... just like today's 100 point (Dow) upward mid-day move in all the major US indices simultaneouly followed by a nearly-immediate drop of the same magnitude(!)
A European "report" was mistaken to read that 16 banks had increased capitalization while the report in fact stated that 16 banks were failing stress tests and needed to raise capital (very bad news.)
Enough said about the quants (massive machine trading from algorithms) for now.
Second and the most important, take a look at the next post.
