This is One of Those Times
Man, you better not be foolin' with me!
The words bring chills to anyone who has studied market history. They know that many of the worst crashes in history were preceded by severe oversold conditions, and the market was declining before the crash began. Just like now.
But here's the problem...name three more crashes that occurred when conditions were like now.
I sure can't, and I looked back 108 years.
Instead of guessing at what's most likely to happen based on unknowable events, let's at least take a history lesson to see what has happened to markets before us. The cliché is that history doesn't repeat itself, but it rhymes.
The big news story of the weekend was that the market had just suffered its worst decline in two years. Bad stuff, and in fact such days did precede what I would consider four "crashes" over the next few days with the Dow getting cut by 5% or more. In fact, the Dow suffered losses of 2% or more the next day 7 times. Yikes.
But you know what? It enjoyed gains of 2% or more the next day 15 times. Yep, we were twice as likely to see a major gain than a major loss. You never hear about that, though, do you? It's always the bad stuff that gets our attention.
Maybe more telling, there were 4 "anti-crashes" the next day, where the Dow was up 5% or more, and three more times where it rallied nearly 5%. So once again, we were twice as likely to see an anti-crash than a real crash.
I can list a whole page full of historic milestones that we reached late last week. I think they're all very important. My take is that the worst is already behind us, we've already seen the "crash" that's on most people's lips this morning. We could see more weakness, particularly today, but if so I think it'll be temporary.
I went to a fully invested position at the close on Friday, expecting to hold anywhere from a couple of weeks to a month or more depending on conditions. More weakness today, and I will most likely go to a leveraged position, so I'm definitely "talking my book" here. Please don't construe this as advice, this type of trading is most certainly not for everyone, or even most people. I'm just sharing my thought processes.
I'm not a gunslinger, very far from it. Even though I go short as readily as long, I tend to be pretty conservative most of the time, except for those two or three times each year when I think the odds are too great to ignore.
This is one of those times.
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