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Market madness continues

Traders crowd post Hercules Inc. closing bell floor New York Stock Exchange Thursday. Wall Street has launched massive rebound sending

Traders crowd the post of Hercules Inc. at the closing bell on the floor of the New York Stock Exchange on Thursday. Wall Street has launched a massive rebound, sending the Dow Jones industrial average up about 550 points after driving it near its lows for the year.

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Updated: May 3, 2013 12:14PM

If you only saw the closing numbers on Thursday -- the Dow Jones industrial average registering a gain of 552 points -- you missed all the drama.

Shortly after the opening bell the market headed lower, plummeting toward a 5½ year low at midday. Then suddenly the market reversed course. From the midday bottom to the close, there was an 870-point rally. That 552-point gain was the third-best point gain ever in one trading day.

What happened?

How could the market "change its mind" so dramatically? Some noted that President Bush spoke forcefully about the need for less government regulation, and optimistically about the future of the economy -- perhaps not coincidentally at the same moment the comeback began. Still, he's a lame duck now, so how much impact could his words have?

Market technicians, who watch the stock charts, point out this was the second "re-test" of the market lows that were made in early October. The fact that stocks "bounced" off this level again was seen as a very positive sign. In fact, this was an "outside trading day" -- in which a market makes a new low, and then closes higher than the previous day. That's considered a very bullish sign by analysts.

Others said it was a combination of short selling and herd mentality. No professional trader likes to be left behind the stampede.

There wasn't any particularly good news in the economy. In fact, there were more signs of an economic slowdown.

The number of Americans filing new claims for unemployment rose to the highest level since shortly after the Sept. 11, 2001, attacks. The Labor Department said the number of benefit applications jumped by 32,000 to 516,000 last week. Worse, new foreclosure filings jumped 25 percent from a year ago -- a number worse in Illinois, which saw a 31 percent jump.

And oil prices gained nearly $2 to $58.05 a barrel after hitting a 21-month low on Wednesday.

What to do?

These wild gyrations should convince ordinary investors that there is no logic to short-term market movements, nor any ability to predict market "turns" or "bottoms." If so, there's no reason to let the market dictate your emotional well-being, on a daily basis.

Yet, that's just what's happening to so many people who look at their retirement accounts and envision a poverty-stricken old age. They wonder what happened to the hard-earned money they had set aside in their retirement plan!

An e-mail I received this week made it crystal clear that in converting a generation of baby boomers to become their own pension fund managers, we failed to give them any perspective to guide their actions -- or warn of the inherent risks in the system.

"Why are 40l(k)s NOT insured?" she wrote. "Why are we almost 'ordered' to put as much money as we can into our 40l(k). . . I put $600 per paycheck into my 40l(k) and within a couple of weeks I lost over $50,000! ... I'm just so darn mad that our personal funds are not protected!"

It's hard now to convince people that if you believe in the future of America, not only will that well-diversified stock portfolio come back, but will one day be higher. And money you invest today, will one day look like it bought stocks at bargain prices.

And that if that doesn't happen over the next 20 years, then there won't be much of America left to enjoy in your retirement, no matter how much money you have. Yet all of that is The Savage Truth.

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