Did the computers drive the Dow down 25% in a week in May 1940 (no, there was no major war news that would have justified such a move):
TD Ameritrade
Here’s the Dow for the duration of the last depression. Quite a few crashes in there:
TD Ameritrade
The fact is, markets just fall out of bed sometimes. It’s normal, and they don’t need the kind of reasons you can read about in the paper. Greece had nothing to do with it.
A move like this off a top does not mark the end. If we had plunged hard and reversed like this after we were already reading oversold on sentiment and momentum gauges, it could mark a bottom, but not right off the top — that is what should scare people today. This was not like Black Monday ’87 — it’s more like the Black Thursdays of ’29 and ’08 (huge intraday crashes with recoveries, followed the next week by the real crashes), or the Friday before the ’87 crash (down 5%). It’s likely a kickoff to more downside. New highs are possible, but looking less and less likely, and we doomsayers might be right after all these months…
You can’t predict a crash, but you can tell probabilities, and the probability of a decline was high as of last week. We had an extremely, extremely depressed put:call ratio, momentum was rolling over, mutual funds were all-in, and just about every measure of sentiment showed that complacency and bullishness were off the charts.
All this in the face of a depression. Yes, we are still in a depression — that’s what steady 17% unemployment is. Obama and friends conjured up some positive GDP by abusing the Treasury market’s generosity, and that spending is counted as “product,” but tax revenue, real estate prices, rental property vacancies, and unemployment tell the real story: this is a fragile environment. Dow 1500 is still on the table.
And how about gold? I gave up shorting it and suspected a rally after it failed to follow through on that drop from $1200 and sentiment got really bleak. Maybe real money will win sooner than I thought, or maybe this is a 2008 replay and gold will turn once the waterfall gets underway. Anyway, it gives me some hope that the companies in my mining stock database might not all go broke.
Thanks Mike. It was indeed quite an exciting day; and I think we just attended to one of the many air pockets on the way to hard landing of the flight SPY1250
Never say never about 1250, but I really doubt this sell-off is over. Why do we need an extra 30 SP points on the top? Wasn’t 1220 good enough?
I’m just thinking these kinds of flights never reach their destinations, so 1250 seemed a good target to miss
A bunch of stocks and ETFs went to zero, or close to zero, today. They say that liquidity is a coward, but this is ridiculous.
Silver was interesting today. It is trading more like an industrial metal than a precious metal. The decoupling with gold is starting to get pronounced.
Silver and gold never stay de-coupled for long.
> Maybe real money will win sooner than I thought, or
> maybe this is a 2008 replay and gold will turn once
> the waterfall gets underway.
What do you think about holding gold and buying GLD PUTs to protect the downside? A Sept 2010 $100 PUT is $1.20, and the Jan 2011 about double, so it’s a 1%/quarter insurance policy.
andy
That’s pretty cheap insurance. Other option is selling futures — no time decay.