The Dow's Fast and Wild Swings Are Giving Traders a Headache

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Investors Seek Portfolio Defense From China Volatility

The time it takes to win and lose money in the U.S. stock market has gotten noticeably shorter of late.

Losses spurred by China’s currency devaluation sent the Dow Jones Industrial Average down as much as 263 points Tuesday, at one point eclipsing what had been the biggest rally in three months the day before. It fell another 254.21 points to 17,148.63 today at 10:31 a.m.

In the broader market, the Standard & Poor’s 500 Index had the biggest reversal since last October’s selloff, erasing three-quarters of Monday’s gain -- an advance that itself had wiped out the previous week’s decline.

Already locked in its tightest trading range on record, U.S. investors are watching as rallies and retreats alternate with uncommon speed. This is happening in a market that has gone virtually nowhere in seven months even as the average daily swing widened almost 20 percent from a year ago.

“What you make one day, you seem to lose the next,” said Rick Fier, director of equity trading at Conifer Securities LLC in New York. “The reality is everyone is playing the range, buying at the bottom and shorting at the top.”

U.S. stocks succumbed to global economic concerns Tuesday after China’s currency devaluation sparked speculation that the world’s second-largest economy is headed for a deeper slowdown. The Dow dropped 1.2 percent as large companies such as Apple Inc. and Caterpillar Inc. led the retreat.

The S&P 500 slipped 1 percent, marking a turnaround from Monday, when Berkshire Hathaway Inc.’s acquisition of Precision Castparts Corp. and rising commodities fueled an equity rally. The back-to-back reversal of at least 1 percent was the biggest since Oct. 8.

Stocks are heading for the biggest two-day decline since January, with the S&P 500 sinking 1.3 percent Wednesday.

‘Difficult’

After tripling in prices over six years, U.S. stocks have run out of gas and sit roughly where they were at the start of the year. The S&P 500 has crossed its average price in the past 50 days a total of 35 times in 2015, already exceeding any full calendar year in history, according to data compiled by Bloomberg and Strategas Research Partners.

“For a tactical manager, it’s been a difficult short-term run,” Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said by phone. NorthCoast has $3 billion under management. “There are not a lot of positive catalysts to break us out of the top of the range, and there’s not a lot of bad news to break us out of the bottom. We’re trying to be insightful and not over-trade.”

While the benchmark index is about 2 percent from its all-time high in May, volatility is ramping up. The S&P 500’s daily move has averaged 0.6 percent this year, 18 percent higher than the same period in 2014, data compiled by Bloomberg show.

Investors should anticipate more market turbulence because China’s currency move may complicate the Federal Reserve’s timetable for raising interest rates, according to Keith Cataldo, director of trading at Cobleskill, New York-based Fenimore Asset Management, which oversees $2.1 billion.

“Sentiment is very skittish at this point,” Cataldo said. “I don’t know anybody is going to be able to properly predict where the market is going to be at the end of the year.”

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