December 19, 2019

The Market Vs. the Outside World

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On rare occasions do I find one day declines of any great magnitude happen on what is seen from the outside as dramatically bad days. No one is going to argue that the outbreak of Ebola anywhere in the world is good news.  But how the market defines what panic is and what is not, is a different breed of cat, from headline Journalism. In the same way that bear markets have a standardized definition, so panic days on Wall Street are standardized.

A quick review of the “panic” dates outlined out by Yardeni does not line up with many days that declined more than 3 ½%, or a mini panic day.

It’s wise to keep these numbers in mind, with the largest one-day declines in 2019 to date were 3.8% and 3.7% on August 5 and 14 respectively.  The largest one-day fell in 2018 occurred on February 5th at 7.4% and October 10 at 4.3%. Note, there was no outside media event on those days.

In 2017 there was not one down day from open to close over 1.6%. We all recall 2017 as the “lowest volatility” year in history. So, the North Korean Crisis was a non-event for the market and the Trump Impeachment scare also was a non-starter as well.

In 2016 on June 24 the market witnessed a 4.9% decline. On January 15, 2016, there was a 3.7% decline on the day. Both with no physical outside cause on the day.

On August 24, 2015, the market experienced a mini panic of 7.8%, nicked named the ETF flash crash, which was a price event. That event was in line with a panic day and the typical low of the three-month correction. Lastly in 2014 on October 15 the largest one-day decline for the year was 3.7%, the remaining down days were more in the order of 1 ½% or less.

Since I have been talking about the great importance of waiting to be successful, many of my ole Twitter and Facebook following is putting it in their list of traits to be a winner in the markets. But to them and the vast majority, it is only lip service and they will not do it.

However, from a Hedge Strategy engagement point of view, it is the foresight of the rare long bar decline days and their clustering into days or weeks that provide optimal trades that push returns above average, a/k/a Crisis Alpha. The same applies to one-day advances of greater than 3 1/2 %.

Great and Many Thanks,

Jack F. Cahn, CMT

Contrary Thinking Since 1989,

Copyright 1989-2019

Jack F. Cahn, CMT ContraryThinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA., 800-618-3820

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