This Is Exactly The Kind Of Behavior That You Would Expect During A Stock Market Implosion…

If a doctor tells you that his patient’s condition is swinging up and down wildly, is that a good sign or a bad sign? Of course, the answer to that question is quite obvious. And if a doctor tells you that his patient’s condition is “stable”, is that a good sign or a bad sign? Just like in the medical world, instability is not something that is a desirable thing on Wall Street, and right now we are witnessing extreme volatility on an almost daily basis. On Thursday, the Dow was already down several hundred points when I went out to do some grocery shopping with my wife, and at the low point of the day, it had fallen 611 points. But then a “miracle happened” and the Dow ended the day with an increase of 260 points. As I detailed yesterday, this is precisely the sort of behavior that you would expect during a chaotic bear market.

As Fox Business has noted, bear market rallies are typically “sharp, quick and usually short”. I figured that the momentum from Wednesday would carry over into the early portion of Thursday, so I was surprised when the Dow was down by so much as we neared the middle of the day. But then around 2 PM we witnessed an extraordinary market surge

The Dow Jones Industrial Average posted a 865-point swing in less than two hours. The blue-chip index had been down in mid-afternoon more than 500 points to cut the previous session’s gains in half, before bargain hunters and short covering turned a big decline into a modest gain.

An 865 point swing in less than two hours is not “normal”.

In fact, it is about as far from “normal” as you can get.

Let’s talk about short covering for a moment. During huge market downturns, speculators often try to make a lot of money very rapidly by shorting stocks.  But if momentum suddenly shifts, those short sellers can be caught with their pants down and the consequences can be quite dramatic. The following comes from Marketwatch

1 2 3 4
View single page >> |

Disclosure: None.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.