You really need to do a little bit more reading my friend. Here is an excellent place to start: http://press.princeton.edu/chapters/s7341.html Here is an excerpt on the 87 crash: "A lot of work has been carried out to unravel the origin(s) of the crash, notably in the properties of trading and the structure of markets; however, no clear cause has been singled out. It is noteworthy that the strong market decline during October 1987 followed what for many countries had been an unprecedented market increase during the first nine months of the year and even before. In the U.S. market, for instance, stock prices advanced 31.4% over those nine months. Some commentators have suggested that the real cause of October's decline was that overinflated prices generated a speculative bubble during the earlier period." Here is an excerpt on the 1929 crash: "The Roaring 20s--a time of growth and prosperity on Wall Street and Main Street--ended with the Great Crash of October 1929 (for the most thorough and authoritative account and analysis, see [152]). (See Figure 1.3.) The Great Depression that followed put 13 million Americans out of work. Two thousand investment firms went under, and the American banking industry underwent the biggest structural changes of its history, as a new era of government regulation began. Roosevelt's New Deal politics would follow. The October 1929 crash is a vivid illustration of several remarkable features often associated with crashes. First, stock market crashes are often unforeseen for most people, especially economists. "In a few months, I expect to see the stock market much higher than today." Those words were pronounced by Irving Fisher, America's distinguished and famous economist and professor of economics at Yale University, 14 days before Wall Street crashed on Black Tuesday, October 29, 1929. "A severe depression such as 1920-21 is outside the range of probability. We are not facing a protracted liquidation." This was the analysis offered days after the crash by the Harvard Economic Society to its subscribers. After continuous and erroneous optimistic forecasts, the society closed its doors in 1932. Thus, the two most renowned economic forecasting institutes in America at the time failed to predict that crash and depression were forthcoming and continued with their optimistic views, even as the Great Depression took hold of America. The reason is simple: the prediction of trend-reversals constitutes by far the most difficult challenge posed to forecasters and is very unreliable, especially within the linear framework of standard (auto-regressive) economic models. A second general feature exemplified by the October 1929 event is that a financial collapse has never happened when things look bad. On the contrary, macroeconomic flows look good before crashes. Before every collapse, economists say the economy is in the best of all worlds. Everything looks rosy, stock markets go up and up, and macroeconomic flows (output, employment, etc.) appear to be improving further and further. This explains why a crash catches most people, especially economists, totally by surprise. The good times are invariably extrapolated linearly into the future. Is it not perceived as senseless by most people in a time of general euphoria to talk about crash and depression? The political mood before the October 1929 crash was also optimistic. In November 1928, Herbert Hoover was elected president of the United States in a landslide, and his election set off the greatest increase in stock buying to that date. Less than a year after the election, Wall Street crashed. " Better re-educate yourself my friend.
My God is this bickering silly... By definition: crash - in a bullish up move prices fall through the floor, ie. suddenly break significant support capitulation - in a bearish down move prices fall through the floor, ie. suddenly break significant support Arguing with the above is like saying that after a significant down move a rebounce from a support line is topping activity. (For the uninitiated: its not.)
Stocks were up approx 33% year to date before the bottom fell out starting with August of 1987. There was plenty of 'good news' that drove up prices to that level all year.
Very, very eloquent and rational post, IMO. Buy irrational fear, and sell irrational euphoria. The trick is the timing, if you want to maximize profits. Sometimes, attempting to maximize profits puts you at peril, though. You'd be better off taking the chips when you can, long or short.
Mav's eloquence notwithstanding the sample size isn't exactly compelling me to sell any puts here and now (though I did in March to handsome reward). One reason why it could be different this time is that we should have crashed already, closer to the time when the majority were indeed seeing things as rosy but the Fed clearly forstalled that and potentially has created a delayed crash scenario. Personally I haven't been looking for a crash just looking for 131-2 SPY and I got it. You could also argue that the market is more sophisticated now and that a mini crash can occur without taking the whole thing down. Looking at the financials it certainly appears that they have crashed from the rosy times back in early 07 (score one for Mav). One interesting stat I came across this week is that both 29 and 87 happened from oversold positions with RSI in the 19 area.
RBS made the call on 6/17 12,160.30 Dow close on 6/17 11,453.42 Dow close on 6/26 -706.88 points / -5.8% Good call.