Market Volatility Fraught With Danger

It’s one thing to ride a wave going up, or to ride one going straight down. It’s an entirely different story to be caught in turbulent water that’s churning up and down without warning. And it’s where many investors are finding themselves this week.

…a little seasick.

With the news of the banking stress tests, swine influenza, and the dismantling of our automakers, the markets are balancing a lot of negativity with a surprising amount of consumer optimism. It may be the only thing buoying the markets right now.

Painfully, many investors who have rushed back into the markets over the past month may now find themselves having bought at the peak of a bear market rally. They’ll get to watch their holdings sink down again.

If this happens, it could have a chilling effect on the mindsets of many investors. And the net result is that it will prolong the recovery and the return to “business as usual.”

So we’re looking at the current juncture in the markets as being fraught with more danger than many want to admit. It’s not the monetary damage, it’s the emotional impact.

A good example of what kind of tipping point we’re at is the price of crude oil. It’s been flirting with $50 for a while now. But that may be the artificial price the markets have “agreed” on until things change in the global economic picture.

But even at $50 it may already be too expensive.

And if demand doesn’t increase, we could see this artificial price point slide lower. Inventories are piling up - in the United States and in Europe. At some point if that doesn’t stop, the economics will do what the traders are not: force oil prices down.

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