I want to revisit a previous post I wrote back on October 4th entitled Examining Previous Bottoms. I feel that this post was pretty important because it gave you clues of what to look for when a index may be about to suffer a serious correction.The following Monday after I published this analysis the Dow Jones fell a whopping 26% in 5 trading sessions. The reason I’m bringing this up is I feel that there is a better than average chance that we may experience another 20%+ drop in the markets (not including these past 2 days) very soon based on the following reasons.
- We may have just experienced the downward consolidation that I had previously thought had occurred during July-Sept, when in fact it may have just been the warm for the big fall. Now part of me hopes I’m wrong in this as I don’t want to see anymore damage inflicted on peoples retirements, but this could be a big opportunity that we won’t see for a very long time. We seem to be breaking down out of this sideways move with volume picking up and it just seems unlikely that we’re going to rebound from this level, however a double bottom could still play out there.
- We hit new fresh multi year lows on the markets today and the Vix didn’t hit new highs? What has to happen before this goes over 100? A mass liquidation out of equities would do the trick. Even a 20% correction from today’s closing low would only be 1500 points. I think we’re going to see a intraday swing of maybe 2000 or more with the buying coming in at the close to get us off our worse levels for the day when it does happen.
The media was calling the bottom all the way down on the first leg down telling us it was a buying opportunity. I don’t think this will be the case this time around. Real fear will be in the air unlike anything we’ve seen yet. The kind that I’m to young to even know what it’s like. Wouldn’t it just be crazy if Cramer was actually right when he said the Dow could fall to the mid 5000’s. I think that would be perfectly fitting in an upside down world that if the Dow fell that low, people would still be afraid to buy into it, which is exactly the type of mentality is needed for a bottom to form.
This scenario is the most unlikely or at least the most least talked about possibly that I’ve heard so far. Although it makes perfect sense if you think about it and when you consider my points. After everything investors have just gone through, another crash likely would put them over the edge.
All I’m trying to do here is prepare you for what might happen as there are 100 other ways this can go down. The good news to all of this is that I think this should happen very soon, like in the next few days to a week as momentum to the downside slowly feels like it’s picking up steam. If we move higher from here and rally I will probably take this possibility off the table. We dropped almost 1000 points in 2 days and it feels like nobody really batted an eyelash over those losses. What’s another 2000?
