Just a heads up that I attended a webinar last night where the
analysts made some comparisons between the Oct 19 1987 market and
today's market and noted significant similarities. What the
analysts said was that the current market (Jan to March) is almost
an exact set up of the Aug to Oct 1987 market but noted that the
chances of such an occurance playing out when things lined up so
exact were low but made this warning.
What makes today's market so risky is the mutual Monday
phenomenon where the futures spike prior to the Monday opening and
thus most traders close out shorts prior to the Friday close. Now
playing the devils advocate, what would happen if bad news hit the
markets over the weekend? You would have shorts and longs competing
in the market on the sell side thus potentially causing a Oct 87
scenario. Shorts by their very nature are good for the market and
cushion down legs to some extent because you have shorts covering
in a falling market. Take those shorts out of the market and you
only have the buy on dips crowd supporting the market initially and
when the market slices through perceived support levels these buy
on dips crowd will be adding to the sell velocity thus ensuring a
large move down.
Whilst it is financial suicide to carry shorts into the Monday
spike phenomenon I suspect it may be just as risky carrying longs
into Monday's as well.
Posted by tomoboyle on 10th of Mar 2010 at 02:51 pm
Don't forget those who bought the day after the 87 crash made a
killing as the market recovered all its losses in less then 6
months! I wish it would happen as I would pull up the truck and buy
the heck out of it.
Black Monday was only half the drop. There was a big
accelerating down week which led to Black Monday. I find it
hard to believe that contrarianism is the only way the market
operates. We have 16-18% unemployment, bankrupt cities,
massive municipal layoffs, awful sentiment.... and for a
reason. The world is changing -- it has changed. The
fact that people now realize it means we go straight up
forever?
I think your thinking is common throughout the market at this
time which increases the possibility that such an event could
occur. There is only four triggers needed to achieve such an
event.
1. Complacency (Markets always gap at the open on Mondays)
2. Markets rallying on falling breadth (Been happening for a
long time)
3. Lopsided longs compared to shorts (Shorts closed out each
Friday)
4. Bad news event occuring over the weekend (The final
trigger)
Three of the four triggers are present every Friday! You only
need the fourth event to trigger such a reaction.
Potential triggers;
Carry trade unwinding (already occuring but slowly)
Interest rates spike higher (forming a triangle)
Eurozone PIIGS bad news event (would trigger both of the above
to occur)
Other bad news event (China etc)
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Potential for Black Monday Repeat is High
Posted by phillw on 10th of Mar 2010 at 01:14 pm
Just a heads up that I attended a webinar last night where the analysts made some comparisons between the Oct 19 1987 market and today's market and noted significant similarities. What the analysts said was that the current market (Jan to March) is almost an exact set up of the Aug to Oct 1987 market but noted that the chances of such an occurance playing out when things lined up so exact were low but made this warning.
What makes today's market so risky is the mutual Monday phenomenon where the futures spike prior to the Monday opening and thus most traders close out shorts prior to the Friday close. Now playing the devils advocate, what would happen if bad news hit the markets over the weekend? You would have shorts and longs competing in the market on the sell side thus potentially causing a Oct 87 scenario. Shorts by their very nature are good for the market and cushion down legs to some extent because you have shorts covering in a falling market. Take those shorts out of the market and you only have the buy on dips crowd supporting the market initially and when the market slices through perceived support levels these buy on dips crowd will be adding to the sell velocity thus ensuring a large move down.
Whilst it is financial suicide to carry shorts into the Monday spike phenomenon I suspect it may be just as risky carrying longs into Monday's as well.
Don't forget those who bought
Posted by tomoboyle on 10th of Mar 2010 at 02:51 pm
Don't forget those who bought the day after the 87 crash made a killing as the market recovered all its losses in less then 6 months! I wish it would happen as I would pull up the truck and buy the heck out of it.
Black Monday was only half
Posted by kalinm on 10th of Mar 2010 at 03:41 pm
Black Monday was only half the drop. There was a big accelerating down week which led to Black Monday. I find it hard to believe that contrarianism is the only way the market operates. We have 16-18% unemployment, bankrupt cities, massive municipal layoffs, awful sentiment.... and for a reason. The world is changing -- it has changed. The fact that people now realize it means we go straight up forever?
Poor Mondays
Posted by RM686 on 10th of Mar 2010 at 04:35 pm
You are racially profiling Mondays/ bad, bad, bad ,politically incorrect/
the reality is exactly the
Posted by knop on 10th of Mar 2010 at 02:17 pm
the reality is exactly the opposite
as long as there are posts like "black monday repeat" etc mkt will just continue to creep higher through wall of worry
the epic collapse will happen... but later... when noone will even think of it
I think your thinking is
Posted by phillw on 10th of Mar 2010 at 02:59 pm
I think your thinking is common throughout the market at this time which increases the possibility that such an event could occur. There is only four triggers needed to achieve such an event.
1. Complacency (Markets always gap at the open on Mondays)
2. Markets rallying on falling breadth (Been happening for a long time)
3. Lopsided longs compared to shorts (Shorts closed out each Friday)
4. Bad news event occuring over the weekend (The final trigger)
Three of the four triggers are present every Friday! You only need the fourth event to trigger such a reaction.
Potential triggers;
Carry trade unwinding (already occuring but slowly)
Interest rates spike higher (forming a triangle)
Eurozone PIIGS bad news event (would trigger both of the above to occur)
Other bad news event (China etc)