There seems to be a growing consensus that the market is on the cusp of crashing like it did last summer around this time after a multi-week rally. Relying on historical analogs to trade is usually misguided in that there are too many easy “examples” throughout history of what you may wish to occur in the present or near future. In other words, the analog types lurch for confirmation bias as often as they can, regardless of how intelligent-sounding their arguments of objectivity are.
If the stock market is truly on the precipice of rolling over and crashing here, and there are basically no signs of that yet, then traders managing risk will already be long gone and escape relatively unscathed. Thus, constantly trading in fear of a crash is not a strategy that works well over time.
The progress made by the bulls in recent weeks should be respected instead of some historical overlay with a cherry-picked chart from a given point in time in the market. What we are seeing this morning with stocks in the red is likely part of the backing and filling process I discussed on my video recap last evening. Looking out to next week, some better entry points for longs are likely to emerge if the selling pressure remains contained and eventually tapers off. Prior momentum leaders, such as AMZN (I am long inside 12631) are also showing newfound signs of life, another encouraging sign for bulls.
Even if stocks do not repeat but rhyme with last summer’s crash, the strategy of slowly wading back into the market on the long side will prevent you being swept out with the tide.
Repeat but I think the rally starts sooner since it’s a critical election year.
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The real determining factor will be if $TLT can hold above 130 or if it does a mean reversal.
History may or may not repeat itself; but the past history books have shown that history often repeated itself from time-to-time.
However, for our trading purpose, it is really not the issue of rather history will repeat itself but the “timing” of the repetition.
There are factors in 2012 that may negate the repeat of 2011 such as the presidential election as mentioned by Marc David above; on the other hand, anything ugly from the Europe zone in the near term will sure raise the prospect of 2011 summer all over again.
Like you said, we can’t let the past dictate our decision on what to do now; but we can surely learn from the past and be prepared for possible scenario by following the price actions.
Thanks for the nice post.