When you watch the stock market with interest as I do it is easy to spot trends and movements because it operates on a simple rule – which is it HATES uncertainty! So it seems that it doesn’t matter whether news is good or bad – as long as it’s certain.
Take last week – which was a roller coaster week for the UK.
On Wednesday the successful Olympic bid was announced and the stock market shot through the 5,200 barrier for the first time since March 2002 – that was the good news.
And then on Thursday morning the terrible news – the London bombs – and the stock market immediate fell back about 150 points in a few hours – during the time of uncertainty. During Thursday we didn’t really know the extent of the problem, but by the end of the day some semblance of control had returned – we thought by then that we knew the extent of the problem and the stock market obliged and bounced back to its opening position.
Then on Friday the market moved up again to close at 5,232 – up 71 on the week.
So first the good Olympic news – the market climbed; then the uncertain few hours - the market plummeted: and then the confirmed bad news – and the market climbed even higher.
And looking through history this is always the case – after even big disasters like Pearl Harbour – the stock markets rose – so the only thing that really shakes the market is uncertainty – and by its very nature – it is uncertain so we can do nothing to predict it.
But just by knowing that we can protect ourselves accordingly with certain tactics – such as automatic stops. In the case of last week you would have been stopped out early on Thursday morning – unnecessarily as it turned out – and you would have had to buy back into all your stocks again on Friday - but isn’t it better to be safe than sorry?
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