If we put in the final bottom for this leg down on Friday then this was the second largest percentage decline in history at 43.5% in 3 months and 7 days. Only the initial crash in 1929 exceeded this with a decline of 45% in 2 months and 6 days.
Does anyone remember Newtons third law. For every action there is a reaction. The same holds true for the stock market. The more extreme the decline the more extreme the counter trend rally. Action/reaction. In 1930 that 45% initial decline produced a counter trend rally of 50% in a matter of months.
Do I think we are going to see something similar? Yep I certainly do. I've stressed over and over how human nature never changes and I guarantee it still hasn't. We have the mother of all counter trend rallies coming. It's going to make everyone believe that we've seen the ultimate lows for this bear market. I guarantee it. I really doubt 741 is going to ultimately prove to be the final low but I think it has a good chance of marking the intermediate low.
I think anyone short the market is now taking a big risk of getting caught in an explosive move up. Everyone has to decide for themselves if they are willing to risk going long in a bear market. That being said counter trend rallies can be extremely profitable in bear markets. The catch is that intermediate bottoms are hard to spot in real time.
At this point though even if one doesn't catch the exact bottom the expected violent rally should be so powerful that any timing mistakes will be trivial. That is if you are willing to take long positions. Bears that just can't bring themselves to play both sides of the market might just consider going to cash until we have signs that any rally is running out of gas.
I would caution against trying to sell to quickly as I expect this rally will go much higher in percentage terms than anyone can imagine at this point.
2 months ago