Will Yesterday's Plunge Spark Viral Market Fear?

Posted on May 07 2010.

Share

No one cares whether yesterdayâ??s record drop in the Dow (DIA) was a fat finger, a mechanical error on Wall Street, or a legitimate breach of a widely watched support level (1144) on the S&P 500 (SPY). If someone screams â??Shark!â?, you run.

There are two parts to markets: fundamentals and psychology. Lately, fundamentals have been mixed. The US economy is slightly improving while Europe faces what could be an epic sovereign debt crisis. However, markets have been complacent and have continued to put cheap money to work.

That all changed yesterday. And now that fear is out of the barn, it can go viral without care for causation.

Post traumatic stress can trigger the most primal instincts to protect ourselves. Given the Nightmare on Wall Street during the Great Crash of 2008 when boomers saw their life savings cut in half, retail investors are more likely to sell first and ask questions later. They literally cannot afford to play it any other way.

The fundamentals of the global economy can start to look extremely shitty from the eyes of credit holders in Europe. Add a slowdown in China, and things can quickly sound scary again. If the psychology of fear becomes the shadow of bad economic news, we will be in for a very rocky ride.

If you are ready to take advantage of Gold's next big run, try a free trial to our Gold & Silver Premium service by Chicago Mercantile Exchange commentator Jordan Roy-Byrne CMT. Readers who liked this also enjoyed these posts:BREAKING: Equity Markets Crashing and Flight to GoldThis is What Fear Looks LikeThe Riskiest Countries in the World for Investors

This website uses IntenseDebate comments, but they are not currently loaded because either your browser doesn't support JavaScript, or they didn't load fast enough.

Be Heard: Leave Your Comments on this Topic:

Click here to cancel reply.

Name (required)

Mail (will not be published) (required)

Website

NOTE: We have an aggressive spam filter that will automatically delete any comment containing profanity or URLs. We will never see these comments. We apologize for any inconvenience.

/* Loading IntenseDebate Comments..."; idc_ns.parentNode.insertBefore(idc_ld, idc_ns); setTimeout( IDC_revert, 5000 ); /* ]]> */ /* */ This post was written by:

Damien Hoffman - who has written 646 posts on Wall St. Cheat Sheet.

Contact the author

Tags: boomers, breach, cheap money, chicago mercantile exchange, cmt, commentator, debt crisis, economic news, flashbacks, global economy, great crash, mechanical error, post traumatic stress, premium service, primal instincts, psychology of fear, retail investors, roy byrne, slowdown, sovereign debt

.weeklybuzz { background-color: #F5F5DC; border: 1px solid #ddd; margin: 15px 0px 15px 0px; } .wscsinsiderbox { clear:both; width:300px; margin: 0px 0px 13px 0px; } .followus { margin: 0px 0px 0px 25px; }

First Name

Email Address

Share Your Thoughts

Should elected representatives be allowed to short the markets?

Yes, it's a free country. No, it's in direct conflict with their roles as public officials.

View Results

 Loading ... Recent Posts Markets and Credit are Down, But Marijuana is Higher Dow, ACN and PG Sliding; Activision (ATVI) Shining Bright Will Yesterdayâ??s Record Drop Spark Viral Fear in Markets? 290,000 Jobs Added, Yet Unemployment Rate Rises to 9.9% Foul Ball! Updated List of Contracts to be Canceled by Nasdaq and NYSE sr_adspace_id = 1000001738407; sr_adspace_width = 300; sr_adspace_height = 250; sr_ad_new_window = true; sr_adspace_type = "graphic"; /* */

© 2010 Wall St. Cheat Sheet.

Read Full Article »