What Is a Yo-Yo Market?
Let me explain what 'yo-yo' means in market terms—it's slang for a highly volatile market. You know how a yo-yo toy goes up and down? That's exactly how security prices behave in this kind of market, constantly fluctuating.
A yo-yo market doesn't lean clearly bullish or bearish; it shows traits of both. Prices can soar high and then plummet low over a period, which makes it tough for you as a buy-and-hold investor to turn a profit.
Key Takeaways
- Yo-yo is slang for a very volatile market where security prices keep going up and down.
- In a yo-yo market, prices swing from highs to lows over time, complicating profits for buy-and-hold investors.
- These markets can be profitable for sharp traders who spot buy and sell points and act before reversals.
- Yo-yo markets feature steep up-and-down share price movements that can happen in weeks, days, or even hours.
Understanding a Yo-Yo Market
If you're a buy-and-hold investor, you'll find yo-yo markets challenging to profit from, but if you're an astute trader, they offer real opportunities. You need to recognize those buy and sell points and execute trades before the market flips.
These markets show abrupt, steep movements in share prices, often over short periods like weeks, days, or hours. The shifts are usually sudden, and most stocks move together in unison.
On Wall Street, traders call this 'all or nothing' activity, meaning the market feels entirely good or entirely bad at any moment.
2015 as an Example of a Yo-Yo Market
Yo-yo markets don't happen often, especially extended ones lasting days or more. They tend to emerge when volatility spikes after a long stock price rise, which can rattle investors.
Take 2015 as a case in point. In the first half of the year, the Dow Jones Industrial Average (DJIA) climbed to records without fluctuating more than 3.5% up or down. Then, in August, factors like China's economic slowdown, plunging oil prices, and looming interest rate hikes triggered a sharp drop.
From August 20 to September 1, 2015, there were eight trading days where the S&P 500's advance/decline reading was over 400 or under -400, meaning 400 of the 500 stocks were advancing or declining together. In just two days, the DJIA saw its worst and best days of the year. Before August 20, this had only happened 13 times that year. Compare that to the 2008 crash, where over 15 days from August 20 to September 9, there were 11 such occurrences.
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