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Stock Market Reaches Key Post-Crash Milestone
By Dana Lyons, partner at J. Lyons Fund Management
Stock Market Reaches Key Post-Crash Milestone
The average retest period following crashes similar to that in August have bottomed an average of 27 days after the crash…that would be Friday .
On September 4, we posted a chart showing the path of the S&P 500 following other “crashes” since 1950 that were similar to that which occurred at the end of August. Our goal was to lay out a general road map for how the index might behave in the weeks following the initial August 25 low. Specifically, we looked at drops in the S&P 500 of at least 10% within 10 days.
As it turns out, we identified 11 prior unique crash occurrences. 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. Here is the chart from that September 4 post:
What general takeaways did the chart present us? Here are a few noteworthy items that we wrote in the prior post:
- 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 median bounce between the initial low and the end of the bottoming process was +10%. That would equate to 2056 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.
Our conclusion from that piece was this:
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.
Obviously we don’t like to feign certainty when dealing with markets, only probabilities and possibilities. Well, flash ahead to Friday and we see that the path of the S&P 500 has fairly closely followed the path of “possibilities” suggested by the prior post-crash events, i.e., a rally followed by a retest. Whether the retest of the past few days will be successful (i.e., hold) or not is obviously yet to be determined.
Related to that point, you will notice the significance of Friday, October 2, as it pertains to the asterisked bullet listed above. That is, the previous post-crash instances took an average of 27 days following the crash before they bottomed for good (as defined by “leading to a sustained multi-month rally”). 27 days following the August 25 crash low is Friday. We do not in any way expect that the current post-crash pattern will conform precisely to the average or median or any of the previous post-crash periods specifically. However, it does seem to be as good a time as any to update the chart to check on the S&P 500?s progress and its correlation to prior events. As mentioned above, it has followed the general path fairly closely.
Friday obviously cannot be THE low since it doesn’t appear that prices will eclipse the low from Tuesday by the end of the day. However, if Tuesday was the low (not a guarantee), it did occur in close proximity to the 27-day average of prior events. More importantly, the path of the S&P 500 has followed the general post-crash path that we laid out a month ago.
Again, whether or not the market has put in a post-crash bottom is yet to be determined. But we can see by this study that examining past patterns and price behavior attached to specific circumstances can be instructive of the reaction that prices may undergo in similar circumstances in the future. This is likely due to human nature. No matter what era one is dealing with, people will respond to various stimuli in a consistent and somewhat predictable fashion. And while we will never be able to predict price action with absolute precision, this kind of study can aid us in managing the probabilities in various situations. It certainly has aided us over the past month.
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The bottom will occur and be whatever the PPT determines it to be. Anything else is like reading tea leaves or chicken entrails.
liquidity issues...10 year swap rates 2%, at or below 10 year UST rates which means demand for UST is so great that counterparty risk is ignored. This is a dangerous condition
I agree, PPT rules, especially last Friday. Nice recovery ;)
I work with my own developed cyclical model and it works just fine, hit ratio 75%. Pattern of 2015 is just like 2011.
And indeed, oct 8-10, this Friday, seems relevant, see here:
Www.TripsTrading.com
Please advertise elsewhwere.
Dont panic! Everything is fine!
Translation: Time is up for a bottom so a break below the previous low means a massive, evil, epic, biblical implosion dead ahead!
Humans are not involved in this 'market'
No QE is coming, inho
Sorry, we're out of 0s and 1s this week.
And we cannot produce good monthly charts anymore, no matter how hard we try.
Please refer all correspondence to your local PPT, (insert nation here).
--The Fed
1st of January 2016 is when the Bail-In law will be effective in Europe. Until then, it will go down, but I don't think it will crash.
not much of a dead cat bounce
Seven bounces left to go.
not much of a dead cat bounce
Tyler...this article was a joke right?
How much did you get paid to post this qualified-to-death, useless, want-to be-market technician, mumbo-fed-speak?
with all fucking respect, of course.
The Source.
Piece of cake. You just have to median bounce your V Bottom. But you're right, this stuff belongs up on the header board next to authors of the caliber of Fuc To Market.
Sell the rips Bitchez.
Look at volume across all the equity indexes.[pathetic] The black out period for corporate buybacks and earnings reality vs rate increases is going to be interesting.
The markets dictate risk. Bitchez
If Moe Howard lifts rates, expect "at least", a risk differential of 1:2 hike in the swaps and other overnight lending markets.
* Trader tip. Short MBS/ anything mortgage backed paper is open to exposure.
I'm still short corporate debt. It has a long way to go. BLUB BLUBbubbles
Stocks have been set back 1 - 2 years after what happened in China, Europe, and the US. If there is any case that is bullish I'd like to hear it.
Capital flight from ME and ANCHORS (er, um, I meant to say BRICS)?
Mysterious explosion at Samsung Galaxy plant?
Discovery of multiple floating mountains of gold washing ashore all over the world?
First message received from outer space deciphered to be quadrillion share market buy order for YUM Brands?
Swiss government holds giant Quitting Business sale and offers the contents of numbered safe deposit boxes for sale at $1 ea. if you buy 5? Plus VAT, of course.
Bankrupt states, here's looking at you Illinois, begin paying lottery winners in DJIA warrants instead of cash?
See? There's plenty of room for continued growth and reason for optimism.
Let's find a model that fits what the Central Banks want to manipulate reality to be, then call a bottom. The Central Banks are losing control. How much of Friday's move was "wash" HFT Algo trades to create the illusion by the Wizards of the Central Banks? Let's pull back the curtain.
You've been buying silver bullion then.
Peak-to-trough took ~2.5 years during the 2000 crash, ~1.5 years during the 2007 crash. We peaked this go-round, on May 4 if I recall correctly, at 2134 on the ES. But since this pattern is so much bigger, I expect it to take longer than either of those to complete. Technicals don't always play out. But if this is "the big one" that it looks like, these things take time. During which, just like before, we can expect Jim Cramer et. al. to be calling bottoms all the way down...
(original post deemed useless)
GS et al are running this show. I would assume they know when to conduct a successful "re-test".
Are you a conperson?
http://www.showrealhist.com/recDJIAtoRD.html
I hardly think we've arrived at post-crash bottom. I believe we and the world haven't seen anything yet.
I think I am just going to chart my own course... thanks
Here's a list of my useless financial secrets:
1. In low-IRR sectors, plan to securitize unpooled currencies.
2. OTC stocks: in the agricultural exchange, always insure them.
3. Be sure to leverage mortgage-backed capital adequacy requirements.
4. In subordinate-rated market segments, never redistribute liquid physical settlements.
5. Be sure not to prorate lower-classed REMICs.
6. Pro rata special-purpose entities: in the derivatives sector, always insulate them.
7. Be sure not to collateralize sequential-pay shares in the financial market.
8. Be sure to cover non-defaulted liability structures.
9. Plan to restructure credit-linked HELOCs in exchange-traded markets.
10. Never diversify uncovered short positions in the African markets.
11. Never hedge uninsured derivatives.
12. In off-balance-sheet markets, always divest from insolvent systemic risks.
13. Be sure to underwrite revolving transfers.
14. In unsecured sectors, be sure not to prepay subprime forward rate agreements.
15. Plan to amortize counterparty capital structures in the commodities exchange.
16. Be sure to collateralize Senior-rated GSEs in the North American marketplace.
17. Never redistribute high-maturity amortizations.
18. In defaulted market segments, always restructure arbitrage-free liens.
19. In the technology market, be sure not to diversify pooled loan instruments.
20. Plan to securitize pro rata conduits in the precious metals market.
Happy trading...
LOL If that pseudo-random, jargon-pregnant catalog doesn't guarantee you a lucrative offer as a contributing editor, nothing will.
Well, now we know your religious leanngs.
How bout something along the line of Insurrelexicon.
Bad news??
That's mean THERE WOULD BE STOCKS RALLY ON MONDAY!!
Wooohhhooooooo...!!!
I would be more inclined to take this seriously if there were more data points.
It seems the author not only left out the crash / bottom of 2008 / 2009, but also a number of significant, and insignificant, crashes in the past. I suspect this is agenda-setting propaganda on zerohedge (for shame!) and it would be much more fascinating if the data points went all the way back to the 18th century.
I do hope insurrexion posts the script he used to mix those financial terms in a blender, it would at least make parties more fun.
So............
You are a sub then...................... how interesting.