It has been yet another historical day in the financial markets… everywhere, the news boasts that:
Yesterday the Dow went up an unprecedented 11.08%, for a total of 936.42 points - the single largest increase in the Dow, ever.
Hold on a Second…
Does that send flags up to anyone other than me?
I know that the market has declined more than 22% since Oct 1st, so we were due for a rally… but an 11% increase in a single day just seems irrational. When you look at the industry charts, an overwhelming 85% (approx) of stock were up (some stocks doubled in price). It just looked weird… almost surreal.
It’s obvious the market is overbought. And to me, that represents a frenzy that will be followed by a market drop. I am wondering (considering last weeks events) how bad it will be this time?
Did everyone forget the fact that, despite the massive cash infusion and the coordinated efforts of international governments to quell market fear, banks still have billions in bad debt to resolve… And it’s not limited to subprime mortgages and failed securities, it also includes credit cards (default rates have been increasing) and other types of unsecured debt.
Government guarantees are only delaying the inevitable. The market has to correct. You cannot stop it. It’s a cycle. Otherwise it will just be a long, drawn out, expensive fiasco.
Market Bottom, Anyone?
Past market crashes have taught some of us that the volitility, panic selling, and the extreem rallies that we are experiencing have only led to a larger crash.
Yes, I will say it again: We are nearing the bottom.
But yesterday was not it. A market correction does not happen overnight… last week, people were too pessimistic and oversold… now they’re too optimistic and are overbought.
Just because the media says “We’ve just experienced the bottom of the market! BUY NOW!!” doesn’t mean they’re correct. They’re feeding the market hysteria and their need to cling onto any news that the worst is over. It has happened before and it is happening again.
If you bought into the rally yesterday, prepare yourself.
~K
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I think the message to take from all of this is to sit tight. The 11-point rise was, as you say, irrational, as were most of the other big swings and cusps over the last few weeks.
If there’s anything the Dow has been trying to teach us over the past several weeks, it’s that we need to avoid trying to time a market like this one.
Thanks for this. I felt like I was buying into the hype yesterday and missed my chance for a bottom. How can people think everything is better overnight? I think I’m going to sit tight and invest little by little.
Well, I am glad that I am not the only one that thought Monday was nuts…
While there are many investing strategies, choosing to invest over time is a good idea in this kind of market. Although you may not get the “best” prices, you will be able to take advantage of price averaging.
I’ve chosen to sit on the sidelines and wait for an opportunity. In the meantime, I am letting my cash sit in my ING savings account or in a money market fund.
Either way, I believe we still have yet to reach the bottom.
I hear that a reason for the big move was the institutionalized investing (i.e. trader programs that hedge funds run). Something must have clicked with the numbers and everyone bought at the same time via trading programs. It’s just a rumor.
Yeah. I heard something to that degree. But I also heard that people were buying in to cover their shorts too. I don’t know if we will ever be able to pinpoint.
Sad part is that there were a lot of people that were just chasing the trend. They lost a lot of money when the market went back down today when the Dow lost another 733 points…