Sunday, August 23, 2015

The History Of Crashes

"The higher the VIX, the higher the clicks"--Phil Pearlman.  Nowadays you will never get more hits on a blog post than when you write one about crashes.  Fear sells; if you can get a once in a lifetime crash call correct you will be immortalized for years regardless if you get everything wrong afterward.  Remember, Elaine Garzarelli, Marc Faber, Nouriel Roubini, Meridith Whitney, Hussman, Peter Schiff, etc.

Here are a few things to remember;

  1. The market goes up and down not up or down.
  2. Corrections and outright bear markets are painful.
  3. Big money is made after corrections, the bigger the better, live to fight another day but embrace corrections.
  4. Indices have a tendency to come back, stocks are a different story, most don't make it.
  5. When you look at the charts below you can focus on how scary the sell-offs were, or you can look to the right and focus on what happened afterward.
  6. The biggest rallies happen during bear markets, be very careful shorting in the hole.
  7. The first low after a rapid sell-off is usually not the last low.
  8. A retest of the first low happen often; the retest normally forms a new low along with some positive divergences, i.e., less 52-week lows, etc...
  9. Many lows are made in the month of October.
  10. Every sell-off, 1987, 1990, 1994, 2001, 2007, all felt like the end of the world.  The media made it seem that way, today Twitter will make it feel like an apocalypse.

Below are annotated charts of the SP500 during corrective/bear market periods.

1987
 1990
 1994
 1997
 1998
 2001
 2002
 2008
 2010
 2011

fzorrilla@zorcapital.com   @Zortrades

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