The 3 Forces Behind a Market Crash

Discussion in 'Trading' started by bluud, Aug 30, 2007.

  1. bluud


    1. The manipulation of stocks.

    Today, however, there is far less potential for manipulation of the market. A better-staffed SEC, new regulations on the books including Reg AC (requiring a greater level of disclosure by analysts), the structure of IPOs, as well as Sarbanes-Oxley (expensive, but effective), mean that whatever manipulation is going on today is largely relegated to micro caps.

    2. Lending money to buy stocks.

    I'd have to admit that this factor is somewhat troubling today. According to a recent Barron's, there is a higher level of margin debt for the New York Stock Exchange and Nasdaq this year than at any previous time -- $303 billion, just slightly higher than at the peak of $300 billion set in March 2000. I'd keep an eye on this factor, but I'd measure its effect through the lens of the third factor.

    3. Excessive optimism.

    Today, though, the market as a whole (link opens Excel file) is trading at 16 to 17 times earnings, comfortably within the range of the historical average. Indeed, in comparison to interest rates (the Fed model), today's earnings yield points to underpriced securities. You cannot bend, fold, spindle, or mutilate these figures to arrive at the conclusion that there is rampant excessive optimism built into today's domestic stock prices. Foreign emerging markets? Yes, perhaps -- but not here.

    So this appears to be a good time, even at new highs, to stay in the market.

    all this bullshit was quoted from August 10, 2007 b]
  2. So what's the trigger then?
  3. S2007S


    "So this appears to be a good time, even at new highs, to stay in the market."

    :p :p :p
  4. I'd like to add one other. Terrorism. Which brings to mind what another poster (Brandon) opined on another thread. "The Fed is confusing the stock market with the economy."

    In the event of another attack, an infusion of money via credit to keep the ball rolling may not be an option. Seems we are at a point of burnout.

    What's the fed to do, to support a market in a terroism event? It would seem a sleight of hand to foist on the public to really "sell" the stock market as the economy to the media. Maybe it is being done. Current volatility, could be suspect. Not sure if I'm being clear here, just a conspiracy thought. If the market could rebound (or move)quickly for reasons other than depending on consumer credit or mortgages, may be in the works.

    Yea, I'm suggesing fine tuning of the PPT may be coming to a theater near you.
  5. Market sure seems to be ignoring all negative information today. It seems like it's back to doing what it wants.
  6. S2007S


    yea, down over 100 at the open now up 6, im not buying it. Closed out my SSO position at 88.70 and will wait patiently for the next 150-300 point dip to start adding a few longs.

    There is plenty of negative news out there, surprised to see the market doing its thing again today. The calls on the financials today should not take anyone by surprise, earnings are going to be very troublesome for them.
  8. I don't know about the historic P/E's, but looking at the tape for ISRG, BIDU, FSLR, I can see the big players pushing the stock around.
  9. ElCubano


    it all depends on the magnitude of the "terrorism event"..... and in a smaller event it might make it a super buy....i dont know ..
  10. bluud


    Not that they are wrong or right ... the thought process they have applied in order to reach a conclusion that, it is a good time to buy, is silly.
    #10     Aug 30, 2007