When Markets Collapse Beyond 50%

Discussion in 'Trading' started by HGTrader, Mar 5, 2009.

  1. <img src="http://img4.imageshack.us/img4/7662/dowchart1930.jpg">

    <img src="http://img4.imageshack.us/img4/9448/dowchart2009.jpg">

    a few notes:

    Until recent days, the Dow has always found major support somewhere between 25% and 50% down from the ALL TIME HIGH. Even in 1929 the market produced a 48% five month rally when it was just shy of reaching the point of losing half its value--of course after that bull move the market penetrated below the 50% support and collapsed. All the other instances held up long term and never breached 50% from the all time high point. There were TWELVE such occurrences, plus the failed one of 2008-2009.

    The occurrences after 1950 were more prone to find support in the shallow end of the 25-50% zone, it was the opposite for the 1st half of the 20th century with the market more prone to finding support closer to 50% from the peak rather then nearer to the 25% band. And there is one other time in which the market found support deeper down: 52% down from a lower high(the support at 52% being the trough of a higher low in 1942 of the "BIGGER" market waves....with its all time high in 1929, all time low in 1932, its key "lower high" in 1937, and its rock bottom turning point at 52% down in 1942 when world war II was raging)

    2008-2009 drop: market doesn't have the decency to generate a significant bull move in the zone where history and precedence has always produced one in the Dow.

    What happens to all that large pool of powerful "smart money" that buys in for the simple reason that it knows the market ultimately turns back up when the markets are down 25% to 50% from the all time high, buying in at 25%, at 30%, at 35%, at 40%, at 45%, at 49%....? I would think that this key crowd would heed the precedence of the Dow NO LONGER BEING IN AN AREA THAT HAS A HISTORY/RECORD OF PRODUCING THE START OF GREAT BULL MOVES and has now entered a ZONE of--at best--"uncertainty" after dropping out of the safety net or--at worst--a zone that in fact has precedent of being a PIVOTAL POINT positioned just prior to a giant bear market move from Dow 190 to Dow 42(see chart).

    I would think that:
    This crowd would cut its loses or exit to preserve its long-term gains due to the new UNCERTAINTY and RISK of major losses. They would exit their long positions at all sorts of prices, whatever prices the market provides them, but in an orderly fashion as a massive inventory of stock doesn't get unloaded all at once without pushing the price down on yourself and they don't want to spook the markets into dropping like a stone while they still have inventory. They would become a constant and massive source of downward pressure. And Smart buying at 45-49% down from peak may have been highly leveraged and would thus want to become the most urgent sellers when the market is down to only 50.1% or 51%.

    I imagine a portion of the 25-50% buyers might want to give the market a few percent leeway not wanting to lock in the losses and in hope of getting extremely lucky with a delayed reaction of the stampede to the exit, giving just enough time for a bull force to plug the hole in the dam before its too late.

    And once they are out, i imagine this powerful crowd of "smart money" would want the market to get as cheap as possible so that it can get back in at good and beaten down prices. Beaten down prices can snap back fairly quickly producing new rounds of riches(see 1932 to 1937 for a Dow rise of 370% in 5 years).

    108 years of dow swings:
  2. we're in a negativity bubble that's about to be popped real soon
  3. I want to see dow go to zero. lol
    Therefore shut down the game; Fat chance. :D
  4. I think you will find that the "smart money" is NOT in control of their own destiny.

    The "smart money" is getting margin calls from their broker and capital calls from their private equity investments so they need cash and they need it quick. But the"smart money" hedge funds have halted redemptions so they can't get cash that way. And jumbo mortgage refis are as dead as the dodo bird (assuming they aren't underwater on their place in the Hamptons already). And then another chunk of the "smart money" capital is stuck in illiquid derivatives and toxic debt instruments.

    That means that the "smart money" is being forced to sell stocks regardless of price and they're selling them quickly because it's the only liquid asset remaining.
  5. There's no such a thing as "smart money". It's another myth, not unlike other silly clichés as "90% of the traders will ultimately fail" or "the market is always rational", created to saddle ordinary investors and traders.

    Market is never rational. It's run by the same asswipes who brought the economy down to its knees. But guess what? That's what creates opportunities for us "dumb money". So be thankful and give our blessing to those faceless smartmoney, albeit still the biggest asswipes to date.