Markets Can and Do Crash Upward - Part 2

Early October, I published a post about how markets do crash upward: (Re-)Discovery of This Week: Markets Can and Do Crash Upward.

Well, the past two weeks have proven that it can happen more often than you'd expect, as we've had the 2nd such occurrence in less than 30 days.

The chart below, courtesy of ZeroHedge.com, shows that the market (ES futures contract) moved from below 1080 to above 1220 points in about 8-9 trading days. This is a 140-point move, above 50% more than the 80 points move I mentioned in my previous post.

The conclusion that I have drawn from the market action of the past several months is that while crashes are fairly rare in normal markets, the only reason why it is widely considered that crashes only happen downward, is that what people consider as normal markets are bull markets.

Well, this is statistically true, but, when in a secular bear market, the normal market is downward, and so, there's a small leap of faith to make to believe that in that case, crashes will be upward?

It is hence my belief that we are in a secular bear market now, and that this sharp rallies should be sold short.

That said, it's obviously very difficult to spot the top, as you can see in the market action of the past few days: no matter how bad the news, the markets decided to rise sharply. I still believe that we are close to the top — 2-5% percent max — if we haven't touched it already.


Tiho said...

No... you were just perma bearish on everything, saying to short tis and that, and saying that economic indicators are collapsing.

It turns out no economic indicators collapsed just yet, that this is not a 2008 repeat and that markets are now rallying after you were trying to short back in mid August.

Go back to those posts and see my comments. I kept telling you this will be at least intermediate bottom due to panic. You kept saying it was complancy. If you bought long dated call option back you would have made a ton.

I think we need to see one more sell off towards 1000 level before I think it's the bottom and than we are done. The market wont come close to 666. Secular bear markets move sideways, not down.

The March 2009 low is the secular low. I've been saying this for years. Eventually everyone will get on lard, but by then they will be forced to buy at 1400 instead of 700. In other words... too late!

p.s. So much for the Aussie Dollar crash... It's still at $1.05!

pej said...

Oh well, markets gyrations are not easy to predict. But the downtrend has now resumed, and the Aussie is back at the lows of the past several months: 0.97 and was trading below it intraday.

It will be interesting but I'm still aiming at a final bottom with between 80 to 90% drop.