These last few days have been, well, dismal. Due to the broader markets, my Apple short has been working pretty well -- but that's about it. If you're like me, you've been thinking that this market has become incredibly oversold, and we musts be due for a bounce. I hope you're not like me, because I've been wrong for days.
I think that most money managers are have been short the market for at least a month, which leads me to believe that a short-covering rally could come any day now. With that said, I think that after this new low we just put in (and we closed near session lows, which is important) it would not be good to have an up-opening. Mark my words: If there is another up-opening, market makers will sell it just as they have sold the last few. Don't get tricked into buying at their spiked prices. I actually believe that it would be healthy to open relatively flat, make our way toward the 1880 level on the S&P, and then have the shorts start covering. Obviously, I cannot predict the future; however, I believe that this market needs to bounce and it could come as soon as tomorrow. Personally I will most likely be trimming long positions after a bounce and sitting on the sidelines until the all-clear is sounded. Have you seen my new charting feature? It displays real-time data on any stock and allows for clean charting. Check it out here!
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In the United States’ short 239 year history, the Dow Jones Industrial Average, the oldest index of U.S. stocks, has suffered its fair share of crashes. The Dow Jones is one of three major indices often used as a tell of the strength of the overall economy. When a stock market crash occurs, it is rare for one sector to hide, meaning that on the worst days money gets pulled out of the technology stocks and industrials alike. Though often used as a measure of the U.S. economy, stock market crashes have proven, on multiple occasions, that they are not the most absolute means to the desired end: a crash in securities does not necessarily mean that American economy is heading south. The stock market crashes of 1929 and 1987 are two instances that stemmed from two similar economic environments. Each is an event which has showcased the implications of investor sentiment, or general feeling/opinion, on the price of stocks and its role in shaping American economic regulations and society on and outside of Wall Street. Legend has it that the stock market crash of 1929 occurred due to malefactors who rigged the markets and carried a wave of speculative mania through Wall Street. While it is true that over speculation was a large reason for the crash, it was due to investors’ sentiment that derived from the deceptive economic conditions. During the 1920s, life in the United States was surprisingly stable given the postwar recession just a few years prior. In the 1929 edition of his annual message, President Herbert Hoover proudly declared that the United States over the past year “enjoyed a large degree of prosperity and sound progress.” In fact, gross national product grew at 4.7% annually between the years of 1922 and 1929. However, what is so clear in hindsight was evidently not very clear to many in the months preceding the crash. The rising trend of widespread progress was actually what Hoover later cited as a main reason for the crash. In his address, he said that the progress in U.S. economy “gave rise to over-optimism as to profits, which translated itself into a wave of uncontrolled speculation in securities, resulting in the diversion of capital from business to the stock market and the inevitable crash.” Had the economy not been doing so well, investors may have been more skeptical of the true strength of the market; instead, they naively thought that companies would grow into their valuations. The crash had many materialistic and longstanding emotional implications. Whether Americans owned a portfolio or not, all were affected by the stock market crash. After a red October, the coming months saw a reduction in the use of luxuries and semi-necessities and a rise in unemployment. Aside from materialistic consequences, the crash of 1929 created an amount of investor fear never before experienced. This is due in part to the financial system being much less secure than it is today. A main cause of the run-up in U.S. securities was an unsecure, customary behavior on Wall Street: the expansion of credit in the form of brokers’ loans. An increase in margin buying hosed mass sums of money into the stock market, and ultimately led to the over speculation and left many impoverished when true valuations were realized. After the crash, regulations were placed on commercial banks to limit their ability to provide big, long-term loans. Thus, much of the money invested in the stock market after the crash was hard cash. With this regulation in place, should another crash occur, the market was better apt to recover and investors more protected against devastating, debilitating losses and vast unemployment. |