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How to predict market drops?


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How to predict market drops?

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  #1 (permalink)
 mcteague 
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Do you think there are any reliable technical indications of an impending market drop? What do you think the best ones are?

You might answer; 'the same ones for a market up move”. But I am thinking of an old saying that “Markets take the escalator up and the elevator down”. Meaning the drops are often faster and more sudden. Many indicators have a certain amount of confirmation built into. If you are watching some kind of moving average it seems likely you will be both a few days and a few dollars short.

Of course there are methods, like Elliott wave for estimating the likely length of the up move. But I was just wondering if there are any things people keep an eye for the warning message “Holy crap batman. Time to get out of dodge”.

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  #3 (permalink)
 josh 
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mcteague View Post
Do you think there are any reliable technical indications of an impending market drop? What do you think the best ones are?

No, there are not. People have been trying to do it for the past 5 years, and all have failed. On the short time frame, it can be quite easy to short a market which is heavy (think day to week time frame). But longer than that, there are simply too many variables.

Traders do not "predict," as the thread title says -- and trying to do so is probably the biggest mistake most make.

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 mcteague 
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josh View Post
No, there are not. People have been trying to do it for the past 5 years, and all have failed. On the short time frame, it can be quite easy to short a market which is heavy (think day to week time frame). But longer than that, there are simply too many variables.

Traders do not "predict," as the thread title says -- and trying to do so is probably the biggest mistake most make.


Thanks. I don't disagree with that. However regarding "predict" lets not be excessively semantic. I suppose I really mean are there indicators which would make you take a significantly more cautious approach, or even start looking for short trades. I am just guessing that those are different ones than you might use for following a long up trend. But maybe not. Maybe the only answer is keep your stops in place, and be ready for anything.

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 trendisyourfriend 
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Google searches can predict stock market drops
Google searches can predict stock market drops - FierceFinanceIT

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 cory 
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mcteague View Post
...
Of course there are methods, like Elliott wave for estimating the likely length of the up move. But I was just wondering if there are any things people keep an eye for the warning message “Holy crap batman. Time to get out of dodge”.

there are compelling statistics, numbers and charts point to market going up or down. Whatever direction you pick some brand name analyst will agree with you wholeheartedly.

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 josh 
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mcteague View Post
Thanks. I don't disagree with that. However regarding "predict" lets not be excessively semantic. I suppose I really mean are there indicators which would make you take a significantly more cautious approach, or even start looking for short trades. I am just guessing that those are different ones than you might use for following a long up trend. But maybe not. Maybe the only answer is keep your stops in place, and be ready for anything.

Weakening breadth (as measured by any of several metrics) could indicate caution. Fewer new highs for stocks, with an index pushing higher, would lead to caution, for example. An increase in new lows in the same situation would open the door for potential shorts in an index. But the structure of the market itself would be the primary tell, IMO.

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 Big Mike 
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mcteague View Post
Do you think there are any reliable technical indications of an impending market drop? What do you think the best ones are?

You might answer; 'the same ones for a market up move”. But I am thinking of an old saying that “Markets take the escalator up and the elevator down”. Meaning the drops are often faster and more sudden. Many indicators have a certain amount of confirmation built into. If you are watching some kind of moving average it seems likely you will be both a few days and a few dollars short.

Of course there are methods, like Elliott wave for estimating the likely length of the up move. But I was just wondering if there are any things people keep an eye for the warning message “Holy crap batman. Time to get out of dodge”.

Bullish side is where the money is. Always has been, always will be. If you want to plan for doomsday, be long equities and then put your profits under the mattress (etc) --- instead of trying to be short the market.

Mike

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 tigertrader 
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Big Mike View Post
Bullish side is where the money is. Always has been, always will be. If you want to plan for doomsday, be long equities and then put your profits under the mattress (etc) --- instead of trying to be short the market.

Mike

true dat; equity risk premium, inflation, and the asymmetric buying power of the bulls guarantees it...

without exogenous concern
sans respect nor deference
for what or whom preceded
just an internal preference

ever changing context
predictability they crave
these traits not found
in the home-of-the-brave

old formulated solutions
for a state-of-flux enveloped
knee deep in past bias
game irrationally developed

it is a self-evident gift
hell sent, but heaven bent
it's dimson and then some
all else is just sentiment

everything is always different
to some degree
everything remains the same
it has to be

if you catch my drift…


How to predict market drops?-triumph-optimists.pdf

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 mcteague 
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I never actually intended this as a post about when to go short. Mostly I play the long side. I might look at some inverse ETFs when the market seems soft. This has been a pretty long rally in equities. I was just curious what people track when deciding to take safer positions. It would be nice to move to cash at just the right time. The real point is to be in the trend. And long trends tend be stronger and more common. It would be nice if there was some high percentage signal for big drops though.

I do have one pet peave about playing shorts. When people say "there is more risk because a long position can only go to zero and you have no idea how high a stock could move against you when you short" I just want to smack them in the head. No stock is going to infinity. Also most of us have learned to put some sort of stop in. Just in case.

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