Monday, February 5, 2018

My Laws of Stock Market Drops

When a Friday is an unprecedented bad day, Monday typically isn't a good day either.
--- Moreno's First Law of Empirical Market Observation

After a Friday/Monday rout of the markets, Tuesday will be up, substantially; but not enough to cover the previous two days’ loses.
--- Moreno's Second Law of Empirical Market Observations

If Moreno's First and Second Laws of Empirical Market Observations are observed, then six to ten months later we will know if the meltdown was merely a correction or a fundamental problem with the markets being oversold.
--- Moreno's Third Law of Empirical Market Observations

My uncle is in his late 70s – he's had a very successfully career on Wall Street since the 1960s. (He’s retired, but still closely follows the markets.)

In October, when I was in NY/NJ, I had dinner with him and he said there's probably another 1,000 or 2,000 point upside in the Dow. He called it a “melt-up,” meaning that there was still a lot of money sitting on the sidelines that wanted to get into the stock market. But, he warned, the rise since November 2016 was so quick that it would have to meltdown (correct), very soon. Clearly, that's what we've been seeing in the last two trading sessions on Wall Street.

Today, he was telling me that he was picking his buy-list of stocks to purchase, tomorrow, with a caveat that we will get some kind of rally off this dip but it will not hold (it won't erase the loses of the last two days). Those who did not sell will step in. When the second round of fear comes in (meaning tomorrow), it is a tradeable rally. He ended with, “first trade fails” – so don't trade at the open.

It's tough to make predictions, especially about the future.
--- Yogi Berra

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