How Long Do These Selloffs Last?

Overlay these factors over seasonality and see how things deviate then.

Seasonal factors overpower these backtests and skew the the numbers.

I’ve backtested some advance/decline indicators, VIX indicators and TRIN – and taking into account seasonality and strong seasonal tendencies helps a lot.

For ex. trin should have led to a snap back rally, 90/10 down days should have left to a snap back.

What’s stopped all this? Seasonally, this week is a downer. Nearly 100% of the time.

I think we have a long, long way to go. I find it very interesting that the emerging markets sell off every night after we do.

There isn’t enough volume to make this a real sell off yet.

ONE OF THESE DAYS I EXPECT A HEDGE FUND TO GET IN TROUBLE. Maybe after today, because oil and oil stocks are starting to get hit. WHEN A BIG HEDGE GETS IN TROUBLE, THEN WE WILL REALLY SEE A SELL OFF. Mark my words. Does anyone remember what happened in November in oils ? Make that market wide and you get the picture.

Remember that the BOJ will speak later this month. That should be interesting.

I think we are seeing the start of a liquidity crisis. US Fed tightens. BOJ tightens. Mortgages are being renegotiated. Highly leveraged investments are getting margin calls.

Credit card and vehicle financing was record high in April.

Mark my words: The BOJ isn’t going to tighten.

BOJ may not raise rates but they have already tightened a bunch.. have w/d 20 trillion yen out of banking system over last month or so (see Barron’s Asian Trader 3/29 “Sayonara Liquidity”). will be interesting to see how they trade the nikkei tonight.
any elliot wavers out there with comments on the charts.. it seems like this sell-off is unfolding in a vivid elliot wave formation. today may have confirmed the kick off of wave 3 down.

Greg,

I understand your point — but remember:

The Nasdaq is now at 7 month lows; Its down 10% form its peak — which is lot more than its totaly gain was for the year at its high; the SPX is almost flat, and the Dow is 200 points — one ugly afternoon — away from flat.

this site is the ying of the “street’s” yang. as for your concern, i would rather be squarly on the rational fringe than in the pants of mother goose.

“I watch Asian markets overnight.”

Me too.

“India is a huge “story”. Foreign funds have been piling on for quite a while. India will continue to be a useful canary for global markets.”

That is why I think sooner or later we are going to see some hedgies in trouble and then the REAL selling will occur.

Oil is starting to get hit and hedgies are heavy into it. Because it is a sure thing, of course. They are also heavy into emerging markets and they have gotten hammered. The loses in most emerging markets are way worse than ours. You have to wonder why people keep their money in a market when it loses 15 or 20% with no apparent bottom in sight.

One of these days we will awake to a DOW open of -200 points and it will only go south from there.

I find the market being spooked by BB’s speeches to be funny. Just wait until we get a BAD employment report or a bad housing foreclosure report. Then you will really see a sell off.

This market is more nervous than a virgin on her wedding night.

Does anyone have data or a link that compares the current market to 1987 ? Wasn’t the 1987 market sell off preceded by sell offs in the emerging markets ? AG was new at the time, right ? And he was tightening…

1987 vs 2006 ……….Interest rates went from 7% to 10% in 1987 , the $ was down 50% after the Plaza accord received G-7 Ministerial approval in 1985 , and stocks were up 75% over the previous 24 months …. the comparison is a bit different

It seems to me that Bernanke is being portrayed as a one man wrecking crew by a lot of people who have trouble dealing with reality. I personally prefer his relative candor to the dissembling of Greenspan, but am not surprised that it upsets a lot of people to learn that a binge is followed by a hangover.

The entire spectacle of alleged adults squinting to see a rainbow in a hurricane may not be unprecedented, but it seems to me that it is more pronounced now than it used to be. Whether somebody other than Bernanke was nominally running things or not would not change the ultimate outcome which I personally believe will be rather dire mainly because of hedge fund implosions.

I am finding it more difficult to see how there will be a test of the former highs on the way down and will probably just let my index puts ride even as they are meeting initial targets. I don’t want to get extra greedy, but I suspect that there are several support levels that will be broken before this starts to bottom.

The market (SP500) sees a pullback of 5% or more a little over 3 times per year. Or so I hear. The market peaked at 1326 intraday, and corrected to 1245 intraday so far. I’m just wondering if we’re in frustrating trading range for the summer.

If the decline should end on approx. June 15th (according to your probability-based metric), that puts it square in the middle of expiration week – which can make things interesting.

I think I’ll just wait for the dust to settle next week before doing anything, much less call a bottom. Feels too late in the decline to go short…too risky to go aggressively long right here also.

I can’t believe the magnitude of the sell offs in the foreign markets.

Brazil -3.5%, Mexico -2.5%, Japan -2.11%, South Korean -2.05%. And they have been doing this regularly.

Click on the charts and see for yourself.
http://quote.yahoo.com/m2?u

Nikkei down another 2% tonight , down for the year now ….. and South Korea down 2 % after their central bank unexpectedly raised its benchmark interest rate 25bp’s

“So just maybe those same extraordinary circumstances have eliminated the markets as leading indicators of the economy?”

The market just didn’t see it coming. The new Fed, BB, got tough on inflation whereas AG would have let things be. BOJ raised rates. Housing market went from status quo to bad in about 3 months.

Bonds have been inverted for some time, but everyone wrote that off as an anomaly. I guess they were wrong.

Meanwhile South Korea tightens a bit more, making the situation worse.

“I can’t believe the magnitude of the sell offs in the foreign markets.”

Doh. Why is the “magnitude” of the recent declines so hard to believe when you consider the magnitude of the gains that came before?

After tonite’s shellacking, the Nikkei is now down 17.5% from its Apr high. But it rose 63% between Apr 05 and Apr 06 with a nearly vertical move from Aug-Dec. That’s a big move by any standard for a major index. We saw a panicky, money chase and now we’re seeing a panicky decline. As above, so below.

The BSE (India) was even more astounding. It moved 107% from Apr 05 to May 06. Now it’s off 28% in just four weeks. Panic buying leads to panic selling.

Would not surprise me to see these hotsy-totsy hedgie playtoys return in relatively short order to their summer or fall 2005 levels, essentially erasing the entire frothy moves of the past 6-12 months.

The crashes in the Middle Eastern markets in Jan/Feb were the canaries in the coal mine for what we are now seeing in Japan, India and elsewhere.

I don’t expect the U.S. markets to follow suit, despite Barry’s predictions of Dow 6,800 by Oct. The SPX, for example, is only off 6.2% while Japan is down 17.5% and India 28%.

The U.S. indices are already at their summer 2005 levels. The sectors and markets that are being the hardest hit (and will continue to be) are the ones with the most froth and the most profits to preserve.

How can there be profit-taking in the Dow when no one has made a dime off the Dow in the past 2.5 years? It’s pretty much trading exactly where it was in Jan 2004.

All we are seeing is a mad dash for the exits in the hottest sectors/indices as folks who were chasing them up now try to hit the door.

This is nothing new. We saw the same thing in May 2004 when the BSE took a 33% dump in just a few weeks. No way to know yet if this is just another volatile correction or the beginning of something more sinister. But wouldn’t be a total shocker if the U.S. markets outperformed emerging for the next 6-12 months.

“Jeff notes, however, that some stampedes have extended for 25 – 28 sessions, but it is rare for them to go more than 30”

Like the one that went from 1966 to 1982 (1992 in inflation-adjusted dollars) ?
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