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What Happens After A Crash?
Our posts this week have dealt with analyzing the aftermath of the recent historic events that have unfolded in the stock market. However, of all the worthy topics that we have addressed, we have not directly addressed the most important one: the “post-crash” environment. Seeing as though the dramatic market decline in the latter half of August was the tremor from which all other price action has resulted, it stands to reason that we take a good look at it directly. In other words, how has the market historically behaved following similar “crashes”.
We put quotation marks around the word crash as the term is obviously open for interpretation. Certainly anyone who experienced the October 1987 events would be hard pressed to call anything since then a “crash”. However, for the sake of this study we are going to call the recent decline, and any similar such historical selloff, a “crash”. Specifically, we looked at all times in the S&P 500 since 1950 in which the index dropped at least 10% within 10 days (credit to fellow advisor and friend, Paul Schatz [@Paul_Schatz on Twitter] for the concept).
As it turns out, we identified 11 prior unique crash occurrences. By unique, I mean we eliminated any successive crashes and any crashes that were within the confines of a retest of a prior crash. Among the 11, 2 of them – July 1974 and September 2008 – continued to cascade lower, nearly unabated, for several more months. The other 9 resulted in an initial low in relatively short order. By initial low, we mean the first step within a market bottoming process. Those 9 are the subject of today’s Chart Of The Day, and this post. These are the months containing the 9 dates:
- May 1962
- May 1970
- October 1987
- August 1998
- April 2000
- March 2001
- September 2001
- July 2002
- August 2011
We are using these 9 as comparisons under the assumption that the August 25 low was an initial low of a bottoming process. While that is open for debate, considering the price action since then, most noteworthy of which is the fact that the low has not been breached, August 25 certainly fits the possible bill as an initial low.
So what can we learn from these 9 prior occurrences? Here is a chart tracking each of the events from the day of their initial low until the final day of the bottoming process (the bottoming process was determined to be complete if it led to a rally of at least several months).
It is another busy chart, but what sort of instruction can we take from it? Here are a few items of note:
- Of the 9, there was just 1 “V-Bottom” – September 2001 – that was never subject to a retest.
- The other 8 all went on to test the initial low at some point.
- 5 of the 9 eventually dropped below the initial low, if only marginally.
- The quickest retest/bottom process came after the March 2001 decline and lasted just 9 days.
- The longest bottoming process – following the July 2002 crash – lasted 55 days.
- The average bottoming process lasted 27 days (which would equate to October 2 in our present situation).
- The average bounce between the initial low and the end of the bottoming process was +11%. That would equate to 2074 in our current circumstances.
- The majority of the crashes (5) came after significant damage had already been done, i.e., the S&P 500 was anywhere from -7% to -25% below its 52-week high when the crash began.
- The other 4 (1987, 1998, 2000 and 2011) began from within 2.6% of the S&P 500′s 52-week high. The recent crash started at just -1.25% below the 52-week high.
It is not our intent to “predict” the path of prices of the ongoing post-crash period based on these historical comparisons. There is no guarantee that the market will follow any of these precedents, either individually or collectively. Who knows – prices could soar from here without any sort of retest…or they could cascade lower ala 2008. All we are trying to do is improve our odds of making sound investment decisions. In the pursuit of that, we have attempted to identify structurally similar “post-crash” periods for examination.
This examination would loosely suggest that the current bottoming process (assuming we are in one) may possibly persist for another month, with a possible higher bounce along the way before a possible retest of the August 25 lows.
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It depends upon the crash. Many people here on ZH think 'Reset' after 'Crash', but never think about what the world would reset to. Reset to a more pure form of capitalism? Really?
Personally, I shudder to think what will come after the crash. It ain't going to be pretty, which is why it's best to be prepared.
There was a crash?
My crystal ball is saying we test the lows Wednesday, a small bounce, then breakthrough on Friday to wait out the Shemitah weekend below the lows. It goes cloudy after that, I guess I need to have it degaussed again. They don't do degaussing the way they used to!!
That's why I upgraded to a transparent aluminum crystal ball a few years ago.
It scratches easy however.
Me thinks shit happens this weekend and next week is a huge collapse
Yeah my crystal ball showed another 7% drop followed by an additional 3% interday decline but the static set in just when I was trying to resolve the date! First I thought this weekend what with the 3 day holiday giving extra time for those 'random' events to happen. But now I'm guessing the next weekend. Maybe I'll play it safe by snagging some cheap way out of the money weeklies (which aren't so cheap anymore). The last time my gut said to buy some was Friday the 21st. LOL options that I bought for $100 on Friday opened at $3,600 on Monday. Too bad the crystal ball didn't tell me to sell then. I ditched them at $1000 at the end of the day. Wouldn't it be nice if this would happen between Thursday and Friday?
Is this the Onion? When was the crash? I remember a 30 minute blip in the "markets" and then they came back to levels that have only been reached during this bubble. These levels are all-time highs from just a few years ago. You fuckers use some twisted ass logic to create a goofy-ass reality.
For those prepared, it won’t matter.
In general if a person has a paid-off house and a paid off car, they’ll weather any financial storm fine and profit. Ma Bailey did great through the depression.
If a person is on the other side of the coin…. Woe to them. They will be the ones doing ‘favors’ for some bread. Ask the 80+ crowd what they remember as children.
Why not? What we have now is the furthest thing from capitalism.
well, if China bans the post-deletion-of-the-Glass-Steagall derivatives... it might suddently have a nearer thing to capitalism then the whole West
and wouldn't that be hilarious, a One Party theoretically communist Regime having the next nearest thing to capitalism in their financial markets
Reality is often stranger than fiction simply because fiction must make some kind of sense in order to be accepted as fiction and not nonsense. While we must suspend disbelief in order to consume fiction, we still apply "rules of common sense " to fiction. Reality has no such constraints. This is why we are often shocked by reality and not by fiction.
"and wouldn't that be hilarious, a One Party theoretically communist Regime having the next nearest thing to capitalism in their financial markets"
Challenge their power and you will see communist tyranny in all it's glory for a split second before your unarmed ass is dead.
Really dude, the chinese hold the record for murder of their own citizens.
All they will ever have is corruption and tyranny. You should know better but seem to be on some progressive mission.
Don't forget, the progressive stupid, it burns.
Grimaldus
Amen, brother. We will preach the evils of communism until Tyler pulls the plug on us. ALL of these shootings since at least Sandy Hook are false-flag psyops with D-grade crisis actors produced by totalitarian progressives. What is the motive? To disarm us, of course. Just like their heroes Stalin, Mao, Hitler, and Pol Pot did. But progressives wouldn't engage in BRAINWASHING (false-flags) an unsuspecting populace in order to force them into their UTOPIA, would they?https://m.youtube.com/watch?v=bIcSLhGvaTE
https://www.youtube.com/watch?v=RcHRaxN-u5U
Grimaldus, what is a progressive? /s I think I need an avatar that reminds people that I am an eurozoner /s
They expect riots and eventually the whole thing devolving into a revolutionary fireball. Even if that happens historically, revolution has brought more autocratic rule and statism. Prsonaly I believe we will go through a Weimar republic state of turmoil before some form of dictatorial government is installed one way or another. Then again it is also possible that the US will break up and several wars will erupt among the independent states.
You could very well be correct. The one thing I know with absolute certainty is I do not know.
Mako
- System starts
- System expands at the rate needed
- System peaks
- System unable to expand at rate needed
- System collapses
- System liquidates
- Rinse and repeat if choosen
Walking Dead would be closer to reality
Crash?? Of the stock market?? Well, this raises a great question. Been sitting here for awhile before I answer and my honest opinion is structured. First off, lets take my neighbor. 100% MSNBC Chris Mathews lover and is wealthy. We live in a very nice area. Houses average $600,000. He was a bricklayer...he gets about $9000 a month from Social Security, (Him and his wife) and a brick layers pension. He gets so upset when the market goes down, and is in shear joy when it goes up. He will never sell. I have told him to get out but he says "We have great companies". The markets only effect his feelings. His nest egg gets bigger or smaller...just like the equity in your home. You don't sell your home just because the price goes up. Same with these old people and their stocks. Just like my sister. We got a big inheritance last year and it was all in stocks. She will never sell. I parked all of mine and got it out of the markets...I am a ZH reader...so duh. She will never sell. The point I am trying to make is that many people around me who are invested in the stock market don't need the money. It is just uncashed in wealth. Then on the other hand you have 93,000,000 people not in the work force, so they don't care about the stock markets. What other percentage of this nation is NOT in the markets? So how many does it truley affect at the moment of the crash? Not many. You and I sit here because we understand the huge worldly implecations, but to the average joe this means nothing. We are here because if metals shoot through the roof, or we have some other hyperinflationary event, we all get that "Fake" wealth feeling ourselves because of how we prepared. Does a market crash really do anything besides vaporize peoples paper wealth? We are a special bunch here on ZH. We are a very little group compared to the world. As you well know, if you try and talk to your uneducated friends about what "We" discuss here you are looked at as a "Kook" or this stuff goes so far over their head that they also think you are a "Kook". I hope I made somewhat of a point. In my opinion...we here on ZH are SUPER FOCUSED on the markets, and it is HUGE to us. Most of the other folks....not so much...they have no clue, and they will get panicked by the way the media tells them to panic if there is a crash. I woke up about 9 years ago...after I started to look into 9/11...then learned how money was created, the Fed, The Gulf of Tonkin, Reichstag Fire, Fiat Currency, How we monetize debt,Executive Order 11110 etc. I can see why this shit is not taught or mentioned in school... I feel I have opened up some big rabbit holes. You ever wish you could just go back to not knowing what you know?
Wall of Text attacks. Does 20 HP damage.
btw, your post is bullshit. A stock market crash has very real implications. According to you, the crashes of 1929 or 2009 had no impact on everyday Americans.
Stock prices are still tied to the health and success of businesses. The stock market and the health of the economy are not completely disconnected.
Get real and learn to make paragraphs.
666 was never tested
"666 was never tested"
And nothing has been fixed since then.
i felt a great disturbance in the farce. as if millions of bonuses cried out in terror and were suddenly silenced. [obi wan]
Shock and awe will continue until morale improves.
Can't wait to hear the "No one saw this coming. This crash was unknowable."
I'm pretty sure that when the bottom finally falls out you won't hear anything over the chaos.
Or you will only hear what you want to hear over the chaos.
I read somewhere that the percentage drop recently was 7.77%.
Awesome. A practice run!
It's like 2009 never happened.
The major U.S. Stawk indices are down some 10%, barely correction territory, and people are calling it a crash?
Get real. 40% in 6 weeks is a crash.
Anything not "up" is a crash nowadays.
Sure. After a crash, there is silence, you feel numb, your bent and broken body is pressed against the dashboard or the steering wheel and the smashed windshield. You can't move, blood is streaming down your face and you aren't sure whether you are alive or dead. I'm speaking metaphorically of course, a major market crash in which you are heavily invested is even worse.
"What Happens After A Crash?"
There has been a crash? October 19, 1987- now that was a crash.
"Of the 9, there was just 1 “V-Bottom” – September 2001 – that was never subject to a retest."
The market was lower in October 2002, than it was in September, 2001.
Buzzsaw99 i felt a great disturbance in the farce. as if millions of traders cried out in terror as their bonuses were suddenly silenced.
There you go, I corrected it for you.