Bear Market Investing
By Adam Lass
Bear Market Investing: The Dow is Not Done Yet!
In this article
I already know what's going on: the market finally fell, exactly as it ought to have fallen.
In the end, the guys on the NYSE were reduced to pencil and paper, and hand signals.
If we do no more than match the next largest historical drop, we will see another 300 points go away.
There are times when we watch the stock tape searching for knowledge, or better yet, wisdom. And then there are times when we are simply looking for some kind of sick thrill.
Over the past few days, I have received many, many phone calls and e-mails from work-mates, friends, family members and even a few subscribers asking if I have seen the absolute latest bizarre tick, be it up, down or sideways.
My answer, since about 3 p.m. last Tuesday? “Nope.” “How can you not look? Don't you want to know what's going on!” has been the inevitable response.
Bear Market Investing: Cascading Failure
Quite honestly, other than as some sort of gore-fest, there has been little point in watching every little stumble. I already know what's going on: the market finally fell, exactly as it ought to have fallen. There was little more to be learned from the last 72 hour's intraday gyrations.
First of all, the information itself was likely to be bogus. As we have since learned, a computer glitch over at Dow Jones (specifically, the machine that totals up their industrial average) simply shut down for an hour or so Tuesday, leading folks to think that the grinding market drop had flattened out.
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As it turned out, that was hardly the case, and when they finally got back up and running, the corrected data appeared as a sudden 200-point drop, triggering an overwhelming rush of programmatic sell orders, and a cascading system failure clean across the country.
Bear Market Investing: A Garbage Market
In the end, the guys on the NYSE were reduced to pencil and paper, and hand signals. Several old timers I know are still smiling ear to ear about that, but by and large, it was simply a big mess. Leftover orders are still being processed, and no one really knows if any are stacked in the right order.
It's a GIGO situation: when the input is basically garbage, the intraday charts are worthless. But slowly, the general parameters have become clear, and they are quite informative: over the past nine trading days, the Dow Jones Industrials fell about 5.75% before recovering about one-third of that loss.
These facts can be compared now to previous Dow drops. Over the past decade, the Dow has dropped more than 5% 15 times. The average drop was 15% and lasted 2.53 months. Should we match that average, the Dow will drop another 500 points or so, give or take 10 points.
Bear Market Investing: Dead Cat Bounce
If we do no more than match the next-largest historical drop, we will see another 300 points go away. And even the least probable scenario, a mild rally, can offer a “dead cat bounce” no higher than some 195 points before retracing again.
Might happen Monday. Might take another two to five trading days. But more downside is coming.
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