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The stock market is crashing....

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no problem tech/a

You quoted an extract from my earlier post and so your question was directed to me at least as well as anyone else you had in mind.

I also specifically mentioned the weekly XJO chart in my post you quoted from and since you did not mention the DJI or any other index at all in your reply there is simply no reason why anyone should not think you included the XJO in your comments.

My original post wasn't even directed to you personally. It was directed to all who read this thread.

If you want to be taken seriously then maybe consider being more specific in your posts and say what you mean and mean what you say.

see you in the swamp

bullmarket
 

Most professional analysts classify a correction of 15% or greater as a crash.

As for the market continuing to boom, in my opinion at present would be a very good time to be very cautious rather than getting caught up in all the hype. With rates of change in price such as these, I beleive we should be looking for evidence to take contrarian positions (for reasons I will expalin in later posts) History has proven over and over again that exponential price patterns reverse violently when they are done. If people think we are going to have perpetual upward price movements then they are deluding themselves and others .
 
Hi wavepicker

Yes I agree with you re being cautious atm but as I mentioned earlier I see our market (XJO) atm as basically about fair value (for the reasons I gave earlier) and if I had to put either a cheap or expensive bias on our market's value I would have to say imo the market's value is biased towards looking a little pricey overall.....bu that doesn't mean there isn't possibly a little more upside to come in the short term.

Re differentiating corrections from crashes, for me it's largely irrelevant as people will interpret the same given event on a chart differently......ie...whether someone uses a 10% or 15% benchmark doesn't really mean much to me.....and imo you would also have to specify a time frame for the drop to occur within for the drop to be defined as a crash or correction.

Obviously a 10-15% drop in say 12 months is not a crash (for me at least) but the same drop in say a few days or 1-2 weeks could be seen as a crash by some.....but at the end of the day I don't see what it matters as 10-15% drop is still the same no matter what you call it

cheers

bullmarket
 
The difference between a stockmarket correction and a crash.

I remember reading this explanation in the Sydney Morning Herald after the 1987 crash complements of an institutional trader.

It went something like this

'A correction is when YOU lose money and a crash is when we all lose money'

Cheers
Happytrader
 
I like it happytrader


it's as good a definition as any

cheers

bullmarket
 
to anyone who was trading/investing in 87,

Did anything survive the "crash"

Ie petrol stocks, food retailers etc?



Thanx
 
michael selway said:
Btw wayneL u still a Bear?
Click to expand...

Yes, but I'll clarify. That doesn't mean I think the the stock market will crash tommorrow. Markets are ruled by sentiment and will do what they will. I'm bearish on the future for a number of reasons.


Do I think there will be a crash? Not really. I often use the term crash, but not in the sense of '87. But at some time in the future we will have a bear market... could be tommorrow, could be whenever.

But if you have eyes to see and ears to hear, you have to recognise the risks inherent in this world economy. Listen to Jim Puplavas show on the weekends and there is bags of credible evidence for future problems.

Now did I say the market is about to crash? NO! But I maintain my bearish stance, and at this stage, all that means to me is to ensure liquidity of my assets.

"tech/a" said:
I see much which gives credence to a boom that will and can continue due to excessive demand.
Click to expand...

That could be true too. But if so, bye bye earth. There are already scientists saying we are past the point of no return. Now thats bearish.

"tech/a" said:
Wayne do you really think that this bull market is being underpinned by "punters".
Click to expand...

Absolutley! Sentiment is more important than anything. Insto's are not immune to exuberance... and perhaps lead the mug punters like us on this.

There is zero risk premium (to use the term liberally) in this market. Therefore buying at todays prices ia a punt...there is no value overall.

 
tech/a said:
Why Rich? (diversify)

Resourses are booming.

Thats like being in a property boom and buying caravans???!!!
Click to expand...

Tech,

I'm actually overweight materials and energy atm, it just happened that the charts I followed were resources stocks, found low risk entries and just went for it. I did target gold and oil stocks a few weeks ago again (missed a couple of very low risk entries, due to my inexperience) and I'm still following them and pyramiding onto others- but note only some oil and gold stocks are booming (eg TAP had a big fall, ORG is going sideways, SSX has only just recovered and BSL and CSM are just picking up again). The market rarely runs on all cylinders, some sectors lag as the crowd moves away from it, so I'm balancing it out. There will be a move out of resources again. I might buy more on the dips. I've can only handle so many positions at once.

If I have to pick two similar charts and one is a resources stock and one is not I'll go the latter as I want some stability in my running balance/equity curve, can't cope with huge drawdowns. Psychologically I'd rather cope with a few stocks going down from time to time than all going down at once (big resources stocks seem to run and fall together, in general).

Interesting what you keep saying though about putting all the proverbial eggs in one basket, I need to think abit more about it. As a discretionary trader it's more of an issue for me as I don't have figures to rely on like systems traders. I assume you didn't even look at sectors when you took signals in TechTrader, just the trend and the numbers (no funnymentals apart form the initial universe).
 
I assume you didn't even look at sectors when you took signals in TechTrader, just the trend and the numbers (no funnymentals apart form the initial universe).
Click to expand...

Yes I did.
Of all the stocks triggered both ZYL and KZL were selected--specifically.
 
A lot of effort and boy it was a hot day too and at the end of the day I have pulled up just in front excluding previously held stocks. I thought today was going to be one of those once a year type days where everything you buy goes up well maybe its tomorrow. I spent hours this morning picking shares all the signals were right and some of the damn things went down - maybe it was the profit takers. Might just be another day before we have that little correction.
 
Maybe the "I don't want to miss out' and the 'I should have' crowd will brave it and come out tommorrow. Strong emotion that one.

Cheers
Happytrader
 
markrmau said:
I think you mean ZFX !

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=au:zyl&sid=0&o_symb=au:zyl&x=11&y=13
Click to expand...

Ooops Good thing Im not a typist!

Back on the crash topic.
At the time a 40%/37% fall would ofcourse be a crash or prolonged bear market. But over time they are nothing more than corrections within the economy.In years to come any fall be it sharp or prolonged will be veiwed in the same way.
But having part of your invstments in Stocks and other parts elsewhere means you can grab the gains in various areas without over exposure.

There are ofcourse times where you should be heavy into areas which are going gang busters.Now is that time for rescources.

Rich yours is a judgement call and everyone will make similar calls at different times---some--maybe me a little late.Id rather give some back than watch it pass by.
 
resources stocks are not overvalued in my opinion based on current commodity prices BUT it is quite possible the underlying commodities are in a bubble....there is a lot if underlying demand but when copper for example rises 5% in a night things are getting overheated I reckon. I am well overweight in resource stocks, esp MGX but I am wary.
 

Hello Bullmarket,

I beleive it is very difficult to define a "fair value" or perhaps another word for it is "equilibrium" in the market. The market is never in equilibrium. prices are always passing through equilibrium to an extreme either up or down. One thing is for sure however, that is that prices will always revert back to the mean, that is why a major correction/crash is innevitable.

I guess everyone who gets into the market knows that a major correction will happen. The question is when? Anyone can enter the market and make $$ when prices are rising. Where 95% of participants fail is recognizing that the trend is at risk, and devising a strategy/methodology for exiting the market. Their strategy is to keep buying the pullbacks, but at some time sooner or later the pullback will keep pulling back and they will catch a sharp falling knife instead. Buy and hold which Australians love will not work then.

The market is booming now which is great, but optimism is very very high which is a thumbs down in my opinion. All you have to do is pick up and look in the financial pages of any major newspaper which seem to be getting more print space by the week, and also where bulls permeate the pages saying how easy it is to make money in the market and that more and more Australians are now participating in the the market at levels never seen before. This is not the sort the of sentiment seen in the middle of a bull market.


Good trading to all.
 
Hi wavepicker

yes I fully agree with you re using some sort of long term 'equilibrium' indicator as another measure of where the market is at any point in time.

I use average PER's for indexes to get a ball park feel for the overall 'value' in share prices based on forcast EPS numbers for the companies in an index.

For any newbies not sure what is meant by equilibrium I've attached a quick and dirty commsec chart showing the weekly XJO (ASX200 index) and its 65 week exponential moving average (red line) and the 200 week moving average (black line). These 2 MA's could be used as long term equilibrium indicators. But you could use any other long term MA's, Bollinger bands, linear regression lines through the closing prices or whatever long term indicator suits.

I like to use long term MA's as prices/indexes will cross above and below them in bull and bear markets. One downside of long term indicators is that it then takes longer for the market action to be confirmed by the indicator.

Eventually the XJO weekly will cross below both the 65 and 200 week MA's but when that will happen is anybodys' guess atm.

The point I was making earlier re not expecting a crash based on the current prospective XJO PER is that when XJO eventually turns back towards whatever long term equilibrium indicator you choose it will imo be a gradual retrace (obviously barring any global geo-political/economic shock) because with a current prospective PER at ~17-18 it suggests to me the market is fundamentally about fair value with a slight bias overall to looking pricey.

But if the market keeps rising to the point where the average PER for XJO is say 20+ then any retrace is more likely imo to be sharper and faster because at PER of 20+ there is a lot of profit growth built into share prices and if that growth becomes unlikely for whatever reason then sellers will generally move in quickly and sharply.

Anyway, more food for thought

cheers

bullmarket
 

Attachments

  • xjo weekly.jpg
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Will be funny to see how the technical/mechanical trader's 'tight' stop losses work on leveraged positions when the physical stocks gap 5-10% down one day.

No stops getting matched, margin calls on stock falling in a straight line. The assumption of continuous pricing has crushed more than one 'smarty'.

Ever heard of the black swan theory?

No matter how much you 'test' your 'systems' - a one-in-a-thousand day will rip you apart if you are excessively leveraged.

The market is so chock-full of highly leveraged punters at the moment, the eventual pull-back will be ugly. A couple of 100-200 point negative days perhaps.

Forget the following the index performance, it is a sham.

40% banks, 20% RIO and Hills - much of the industrial sector is already smoked. I love the resources, but we are very due for a pullback and many no-growth industrials are hitting PEs over 16.

Anyone prepared for 50 bps of interest rate rises in Aust?

Mugs on ACA saying they cant afford their 95% leveraged home loan.

I have not seen so much confidence in a market.

I am not saying I am switching to cash - just pulling in my horns. More hedge funds, more floating yields, more diversification and less big positions.
 
Now that's a bear!!!!

FWIW, a black swan event seems likely in the current climate. There are plenty of them flying around, depends whether one of them decides to land.

I still think a death by thousand cuts scenario is more likely.
 
Hi BSD

yep generally agree it could get nasty when the correction comes but barring any global shocks as I mentioned before I still think that while our market PER is below 20 any retrace should be gradual overall.

Sure, initially there could be a sudden 100+ point drop initially, just like there was over those 2-3 days back in October when many were then calling the start of the inevitable correction.

I still think that at market PER at ~17-18 there shouldn't be too much devastation but if the the market PER gets to 20+ then yes I agree the severity of the gloom you painted is much more likely when the correction comes.

cheers

bullmarket
 
ooooops

the chart I posted a few posts back is a daily and not weekly chart and so those are 65 and 200 day and not weekly averages....sorry for any confusion.

Joe/Wayne - any chance of increasing the current 20 minute editing time to something a little longer like say at least an hour?

thanks bullmarket
 
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