The unprecedented swings in the stock market through last week left traders jittery. With a $2 trillion swing to the upside on Friday, the week was the most volatile in market history. [Bloomberg]
Bitcoin also saw massive volatility during the course of the week. The coin dropped from $7,500 to under $4,000 in a single day, only to bounce back to over $5,500. Such swings have been unprecedented in the Bitcoin world as well.
The analysis that the bottom has been reached has been widely touted. Even President Donald Trump posted exuberantly about the substantial upside on Twitter.
BIGGEST STOCK MARKET RISE IN HISTORY YESTERDAY!
— Donald J. Trump (@realDonaldTrump) March 14, 2020
However, calling the bottom at this point seems premature. Instead, it makes more sense that traders begin to liquidate positions during a downturn. As panic selling ensues, the market collapse catches traders into itself.
Then, when the selling becomes too drastic, many realize that the market may be oversold. Rather than miss the bottom, they jump back in, hoping to catch the wave back up again. The result is a massive set of market swings that leave traders loopy.
To call the bottom at any point in that cycle is naive. The real valuation issues still remain, and the slowing coronavirus economy will undoubtedly cause continued trauma.
Volatility the new normal
Instead, traders, investors and long-term holders need to learn that volatility is the new normal. The market will continue to recoil as wave after wave of negative news breaks. Investments will be potential losers and winners for some time to come.
According to the pros, buying back in comes with risk. According to Quincy Krosby, chief market strategist at Prudential Financial, it’s all about “peak panic.”
“We saw indiscriminate selling all week long. That’s a good thing because it’s telling you that we’re reaching a panic level. And we always like to say: Try to look for peak panic. Have we gotten there yet? Maybe not yet.”
Bitcoin and stocks are likely to continue to see this type of volatility as the market continues to find an equilibrium point.