Tuesday, 9 August 2011


Armageddon headlines are suddenly back in vogue.
Not a single positive story to be found on the Marketwatch front page,
and some of the TV media coverage is becoming hysterical.  

At last!

We began to see signs of true panic today, with a major spike in both the $VIX volatility index and the Equity Put/Call ratio.  This bodes well for a sharp rebound in coming days, which I fully expect to be met with more selling in the weeks to come.

True market crashes are rare, but their lifecycles tend to be remarkably similar:

  • Panic low
  • Violent rebound
  • Prices fall and retest the panic low, as investors who failed to sell near the top grab their opportunity
  • The panic low is broken (usually)
  • Pattern repeats, and price works its way lower until stabilization occurs
  • Multi-month buying opportunity

Folks, we can't even be sure we've hit the panic low yet. Here is the updated Put/Call chart, which is starting to look positive...

The Federal Reserve board will pronounce on Tuesday - let's see if they can spark a 'we're saved!' rally.

A rebound in the next few days which retraces to anywhere near the March lows (1240 on the S&P500) should be seized on greedily if you're looking to sell or go short.  But I don't anticipate looking for a buying opportunity until we go through the retesting process, and that could take a while.

Meanwhile, I'll leave you to feast on an enlightening interview with Kyle Bass, one of the few investment pros who saw the 2008 financial crisis coming way in advance - and made his fortune in it.  

Here, he tells it like it is. 

(Flash Player required)