Market Panics and Niederhoffer | stockbee

2/27/2007

Market Panics and Niederhoffer

It is easy to lose perspective on days like today. But panics are good for markets. The most important thing to look at is what happens after the panic. Like a rubber ball the markets bounces back.


Victor Niederhoffer often quotes Henry Clews when it comes to market panic:

Henry Clews wrote in Twenty-Eight Years in Wall Street (1887):
But few gain sufficient experience in Wall Street to command success until they reach that period of life in which they have one foot in the grave. When this time comes, these old veterans of the Street usually spend long intervals of repose at their comfortable homes, and in times of panic, which recur sometimes oftener than once a year, these old fellows will be seen in Wall Street, hobbling down on their canes to their brokers’ offices.

Then they always buy good stocks to the extent of their bank balances, which they have been permitted to accumulate for just such an emergency. The panic usually rages until enough of these cash purchases of stock is made to afford a big “rake in.” When the panic has spent its force, these old fellows, who have been resting judiciously on their oars in expectation of the inevitable event, which usually returns with the regularity of the seasons, quickly realize, deposit their profits with their bankers, or the overplus thereof, after purchasing more real estate that is on the up grade, for permanent investment, and retire for another season to the quietude of their splendid homes and the bosoms of their happy families.



Few more days like today and we will be at ideal bounce scenario. So keeping the powder dry is the key.

20 comments:

F. said...

I've never seen a crash like that. On my feed the Dow gapped down 200+ points in a matter of seconds.

Pradeep Bonde said...

There were curbs in effect in many markets. When they get lifted such things happen.

tokyodiablo said...

-500?

holy crap

tokyodiablo said...

what should i buy?

F. said...

I feel that I could have made a lot more today. I didn't get any where near those 500 points on the Dow.

Pradeep Bonde said...

We have not yet reached a buy level. Few days of panic like this and we will.

F. said...

There are only 212 nasdaq stocks up and 2806 down. Only 3200-3300 listed stocks. I think we may have put in a bottom or near it.

tokyodiablo said...

did anyone see this coming? did anyone see china coming?

F. said...

Put my money where my mouth is and went long NQ right after that post.

Pradeep Bonde said...

Many perma bears will claim they saw it coming. Only thing is they have been saying it is coming , it is coming, it is coming for more than 4-5 years. So now they are all dancing in the streets.
Remember when the 50% plus in a month goes above 20 correction is around corner. So one needs to play accordingly. Last time also it indicated coming trouble well in advance. Momentum is cyclical, when it reaches extreme risk is high.

F. said...

China was not hard to see. Huge distribution in FXI in January. Was a risk that I commented on this blog re: this distribution weeks ago. I think just short term and we will retest market highs soon enough.

tokyodiablo said...

pradeep, i am with you...

i am guessing that considering the magnitude of this downward movement and velocity with which panic was induced, that it caught many off guared - bulls and bears alike

F. said...

Dow still above December low. That is the critical point to watch. Must assume status quo that longer term uptrend exists until close below it imo.

F. said...

FYI--interesting study shows good odds of up close tommorrow.

http://tickersense.typepad.com/
ticker_sense/2007/02/and_it_got_wors
.html

F. said...

Also, the blogger poll did a great job of forecasting this drop.

http://tickersense.typepad.com/
ticker_sense/2007/02/february_26th_
b.html

It's a great contrarian tool.

gosu said...

Some things I feel were obvious just before the sell off:
1) Gold rallied 5% in a day last week. I think it was the big guys bracing themselves for the fall.
Same thing happened last year. Click here to see how gold spiked from 570 in March and topped out at 726 just before the sell off, when Nasdaq went down 10% in two months.

2) Percentage of stocks above their 200 Day Moving average was 78. This indicates seriously overbought conditions.
Also, the number of stocks up 100% in a month was >=20.

3) Sell off in Brokerages and Bank stocks in 5 trading sessions before the collapse. Click here to see charts of LEH, BSC, MS and MER. If brokerages are selling hard on three times the average volume, means that insiders know the collapse is coming.

Gosu
http://www.realhedgefund.com

F. said...

All of those indicators are not predictive, gosu. Anybody can point out extreme indicators after a fall. Must be a newbie.

gosu said...

Hi F,
I am no expert but not a newbie either.
And sir, I am not pointing out the indicators "after" the fall, As I mentioned in my blog less than 2 weeks ago, I saw signs that the crash is coming.

NO DooDahs said...

Gosu says that the runup in gold was "big guys bracing themselves for a fall," both now and in spring of 2006. Bracing themselves HOW???? Did you see what gold did during the crash yesterday and the correction last summer? So they "braced themselves" by buying something that would underperform stocks during the crash or correction?

F. said...

That is what some clueless reporter said on On the Money on CNBC last night. She said gold dropped yesterday as those "in the know" sold off on the event. That logic is flawed. Gold dropped yesterday with the manufacturing news looking like economy is going to slow so inflation fears subside. I'm sure that program basket selling contributed to it as well.

Like I said, anybody can point to leading divergences. It's is newbie's game.