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Yee-haw! The mechanical bull market

March 18, 2014: 12:48 PM ET
Stocks have been on a wild rise this year. Buckle up. The volatility probably isn't over.

Stocks have been on a wild rise this year. Strap in. The volatility probably isn't over.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

The stock market bull is still alive and well in 2014. But he's been bucking a lot more wildly this year.

Where's John Travolta and Debra Winger when you need them? Wall Street traders are the new urban cowboys!

The market has gone on some crazy swings during the past two-and-a-half months -- mainly due to fear-fueled sell-offs and subsequent relief rallies when investors suddenly decide that the worst isn't coming to pass.

Ukraine is the market's latest obsession du jour. But traders have also been focused on the so-called Fragile Five of Brazil, Indonesia, India, Turkey and South Africa. China has been another significant source of worry.

Consider this. The Dow has already had 20 triple-digit point moves this year, according to data compiled by Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. And it's almost equally split between greed and fear: 11 triple-digit point gains versus 9 losses of more than 100 points.

Just look at the year-to-date chart for the Dow. It's down a tiny bit in 2014, but the road to flat has been a stomach-churning one.

Now look at the Dow's performance during the same time last year.


Notice the difference? The moves were far less violent. Through mid-March of last year, the Dow had gone up or down 100 points or more only 9 times. You didn't need as much Pepto-Bismol to be an investor in the early part of 2013.

And that lasted throughout the year. The Dow finished 2013 at a record high and with a 26% gain. It was a pretty orderly move higher.

Now I realize that triple-digit point swings in the Dow aren't what they used to be. A 100-point move with the Dow above 16K means a lot less from a percentage standpoint than it did five years ago, when the Dow was at its bear market low of around 6,500.

Related: Time to hit reset button on stocks

But stocks have also been experiencing a greater number of big percentage gains and losses this year. According to Detrick, the Dow has had a 1% move 11 times so far this year, compared with just 4 gains or losses of that magnitude through the same period of 2013.

The trend is similar, albeit a little less pronounced, for the S&P 500. Detrick notes that there have been 11 moves of 1% for the S&P 500 this year, versus 7 such moves through mid-March of 2013.

So what's this mean? If you're a trader, it's hard to stay on top of the headlines -- especially since most of the market's gyrations have had little to do with tangible data about earnings and the economy in the United States.

Related: Market needs a correction. But this isn't 1929!

One day the market is freaking out about Putin's latest shenanigans and the next day investors are cavalierly dismissing Crimea concerns.

You see this in the market's main volatility index, the VIX (VIX) and CNNMoney's Fear and Greed Index as well.

It's probably a bit meta to show how volatile the market is with a chart that displays the volatility of the volatility index. But I like being a bit meta.

And the Fear & Greed Index, which looks at the VIX and six other indicators of market sentiment, has been equally choppy. The index is currently showing Neutral signs, an almost Goldilocks-ian 'not too cold, not too hot, but just right' sense of where stocks are.

However, the Fear & Greed Index was in Greed mode just last week. It was Fear only a month earlier.


So if you are a long-term investor -- they still do exist although some in the financial media would have you believe that they are rarer than a minute steak -- then you should just ride this out. Ignore the noise. Don't get stressed out by the daily, or in some cases hourly, market swings.

Yes, this year's market madness should serve as a welcome reminder to investors that stocks often zig and zag. And that can be scary to live through if you choose to get caught up in the minute-by-minute ticks of the Dow and S&P.

But focusing on a time horizon that goes beyond a day or week will help you sleep more soundly at night.

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About This Author
Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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