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Dorn: Are We Revulsed Yet? ... Nope

For those who have been following my blog posts, the roadmap is playing out well: We got the Shock and Awe phase on Monday. On Wednesday we came close to the Revulsion stage. We are close, but not quite there yet.

Since 2005, I have been writing and speaking about The Big Rollover—the largest political, geopolitical, social, personal and financial train wreck in history. Over the past few weeks, we have seen the power of The Big Rollover. There are 17 macro factors that underpin The Big Rollover. They began to converge during 2007, picked up steam, and rolled over many people in the past three weeks. The power of the Big Rollover (that is still in its infancy) has been magnified by the accelerating speed of communication made possible by the Internet. We believe that all of the progress of the entire 20th century will occur in the first 20 years of the 21st century. We are now witnessing this ferocious rate of change in the financial markets. That is one reason that it “feels” so different this time. This rate of change, coupled with the violence of the deleveraging from margin liquidation has created a spectacle that will be analyzed in the history books as “The Great Crash of 2008.”

What behavioral traders would like to see now are one or two days of large volume and trade within a relatively narrow range. That could happen as soon as Thursday. No one knows for sure, but Thursday or Friday seem like days to expect this. Do we need one final retest and possible undercutting of the lows from last Thursday and Friday before the markets begin the main-event battle of bulls and bears? I think this will be the case, and it could manifest as a massive downage on Thursday morning to totally convince just about everyone that all is lost and it’s just too disgusting and sickening to take any more losses. Complete revulsion and morbid despair will then set in. People will be shaking their heads saying things like: “There is no hope. None. Zero. Zilch. All is lost.” The markets could easily fall another 10% before this point is reached.

Day traders and scalpers have done very well over the past two weeks, as volatility has been their friend. Volatility will continue, but the violence of it is likely to temper somewhat over the next weeks. I now believe that we are on the precipice of some fantastic money-making opportunities for those who have the courage to step up and hold for a few days to weeks. Make no mistake about it please—this is a trader’s market and buy and hope is a recipe for sheer disaster and risk of ruin.

The worst is far from over, as there are huge problems out there that have yet to reveal themselves. For now, however, the markets appear very close to doing their job of removing as much money as possible from as many people as possible and leaving only those select survivors to play another day. Survival of the fittest and selective adaptation apply in the markets, just as they do in life. So it is now, and so it has been since the inception of trading. It’s much faster these days, and the stakes are a lot higher. However, in the end, the game remains the same.

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Janice Dorn, M.D., Ph.D., is a financial psychiatrist and chief global risk strategist for Ingenieux Wealth Management in Sydney, Australia. She also offer trading consulting and coaching services via her Web site, TheTradingDoctor.com.

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