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The Calm Before The Storm

The calm before the storm can explain a lot.  There is always a reasoning behind everything that happens, every action has a reaction, every cause has an effect.  I have been thinking about the record low volume & volatility that we saw in August & September and I have finally come up with a reason of why this is happening.

It isn’t unusual to see low volume in the summer months as the big wigs at CNBC and other big traders take vacations with their kids in the Hamptons.  To have record low volume that we haven’t seen since 2006 and 2007 for no reason at all is safe to say, not normal.

There is some reasoning into expecting lower volumes than normal based on the series of events that have occurred during the last 10 to 12 years.

  • There are have been two economic collapses (2001 & 2008)
    • One being so sever its known as the “Great Recession” (2008)
  • Two massive brokerage failures (MFGlobal & PFGBest)
  • Ponzi Schemes (Bernard Madoff is 2nd largest in history)

Those series of events didn’t hurt volume until the summer of this year (2012).  You wouldn’t expect with so much money being lost for the spike in volatility & volume to occur at the end of last year.  You can check out my recaps from October of 2011 where I was averaging 10-20 points with our Congressive Day Trading System.

The fact is, people are broke and investors aren’t too far behind

If people and their retirement’s weren’t wiped out in 2001, they were wiped out in 2008.  Who ever thought that we would have to worry about our investments in brokerage firms?  Its reported that the majority of people that were invested with MFGlobal will get their funds back but the same can’t be said with PFGBest.  Nothing like $200 million missing from an account to get you wondering where your money is.

calm before the storm

calm before the storm? A storm coming in Medellin, Colombia

It isn’t only just the bankruptcies of these companies, it’s also the ripples that it sends across the industry.  If there is one thing that I have learned about day trading for close to 10 years, it’s that the market is based on emotion.

People don’t feel confident about investing & trading anymore

If people don’t have the money & don’t feel confident investing, that adds to the problem of having record low volume in the markets.

One possible explanation? The calm before the storm.

Jim Rogers, a famed investor that has seen incredible returns over the years, has stated that there has been a recession every 4 years since the beginning of the republic. I’ve gone and taken a look at the data and it is quite true, meaning that the next recession will hit in 2013 or 2014.

danger ahead

Nature has a way of preparing for such events by having what most people call “the calm before the storm”.  I remember when I was living in Florida years ago, anytime before a hurricane would hit there would be an eerie calm.  This is the calm before the storm.

We are far from calm with so many issues in Europe, elections occurring in many countries across the world that may affect day trading, and the fact that we have never truly recovered from the last recession.  The only thing holding the market up are the continuous quantitative easing efforts which has created a false recovery, it has also held back the frenzy which is set to occur very soon.

Many people don’t realize the storm that is coming in 2013 & 2014.  One thing that I am very happy about is that same storm will bring in enough volume & volatility to make the 2001 & 2008 crises look like Austin Power’s mini-me.

So thankful I have a profession that can make money in any kind of market including a recession, with things set to get worse you should consider a profession that allows you to make money in uncertain times as well.

10 Comments

  1. “?Many people don’t realize the storm that is coming in 2013 & 2014. One thing that I am very happy about is that same storm will bring in enough volume & volatility to make the 2001 & 2008 crises look like Austin Power’s mini-me.”

    I’ll take it a step further, this will happen, and since it looks like Romneystein is going to win, he will give more to his moneyedmasters..and corporate psychopaths , a true meltdown will occur, riots will break out and martial law will instilled, also more war in the middle east and the empire will collapse, social unrest, police and army firing in the street, the social safety net will be destroyed to fund the miltary, the kooks as usual will be running the asylum.
    the religious nutters and hate groups and gangs will have a field day..mad max here we come

    …take your money and run…if it’s worth anything

    1. Biafra you are very biased, while we can debate what presidential candidate would be worse, the fact is that based on the actions of the US and the world, is why this upcoming recession will be worse. I think you really should look at the entire picture and not just blame it on one candidate or one party, both parties are to blame and you are very biased.

      1. Biased, everything is biased.

        The problem is it is getting harder and harder for people to rise up and develop. Look back at the mid 90’s and all the innovation we had, the internet, technology…what have we had since 2000..nothing no innovation (if you call fartbook innovation I have A rembrandt painting I will sell you)

        In the 15th centurry in venice the upper classes passed a law which made it impossible for anyone to accumalte wealth and start a new business..the result Venice shrank and was no longer a economic power and lost out to other developing areas which resepected invidual
        endeavors. The same is happening the US…the ruling elite psychopaths are hoarding more and more for themselves thereby making it harder for people to rise up, dumbing down the educational system to make children non critically minded and to be passive robots to twisted authority

        Government is a sock puppet controlled by the likes of Adolf Hitler and Josef Stalin dressed in business attire behind the scenes These people want to restablish a system with peasants
        landholders, back to the middle ages, and so far they are succeeding.

        Is Obama better, well slightly, but at least he will buy us time to improve . The alternative is frankenstein and eddy munster who will make damn sure there rule we turn back the clock
        for the psychopaths behind the scenes

        1. Biafra, I think your again extremely short sighted. In the day in age when you can start a business online for under $100, it doesn’t matter where you are from, what color skin you have, or how old you are. It has been easier now then ever to make money and the rise of bloggers is showing the move from traditional big media companies to individual runs one. I think that you should open your mind to the possibilities rather than being so negative.

          If there is one thing that I have learned about day trading is that you should prepare yourself from any possibility and the fact of the matter is the United States and the world is heading for a very bad time economically, its better to prepare for it rather than point fingers at one candidate over the other. Your frankly very biased and short sided, there is always an opportunity, now more than ever with the internet.

        2. There’s a long-standing fallacy that the Wall Street loves Republicans, and that Obama is anti-business. However, there’s also a school of thought that American presidents (regardless of party) are ultimately front men. Big corporations and elite families (i.e. Rockefellers) are alleged to hold the real power behind the throne.

          I don’t think there’s much anyone can do about the impending storm, regardless of who is elected.

        3. I don’t think you’re only biased, I think you are living in Gloom. And by the way you make the world out to be, i’d want to jump off a bridge.

          you can do what you want to do, but it’s always better to look positively at things and like Marcello says, better not to blame one of the opponents, and trust me I think Romney is a total idiot, but the economy at large is more of the issue rather than which President nominee of US is going to win.

    1. Well Jorge… we need volume and movement to make money. The more volume the better. We have seen days where there hasn’t been much volume and we have been able to do alright but its always best to have more volume

  2. So true Marcello,
    I’m afraid that the next “recession” though will be more like a depression……Just for the fact that we have never really pulled out of the current recession. Crazy times brother, crazy times….

    1. Jason.. if things get very bad it will get worse than the great depression. People lined up for bread to eat during the great depression, you think my generation is going to wait in line to eat? I dont think so.

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