In the fall of 1987, there were 11 days of distribution (heavy volume selling) BEFORE the October 1987 crash. In September 2001, the market was looking horrible, no stocks were setting up, and out of nowhere…9/11 happened.
Fast forward to today. In late September/early October the market experienced heavy distribution. I went to 100% cash on October 9th and discussed my reasons in this blog post. Since then, I was very tempted to slowly get back in because the NASDAQ Composite was finding some support near its 200-day moving average. I didn’t because 1) The heavy selling continued…9 of the past 24 trading days have been distribution days. 2) There were VERY FEW stocks acting well . 3) After all the recent selling, the market couldn’t even put together a 2 hour bounce!
I tweeted several times to remain cautious and that something big might be brewing. Now, out of nowhere… Hurricane Sandy hits. In addition, $AAPL was continuing to break down on heavy volume, couldn’t sustain any bounce and out of nowhere…their head of software and retail gets fired.
There are a few points I would like to make:
1) I’m not trying to say that bad things only happen during corrective markets, however, it’s no coincidence that warning signs begin to build up and boom…unfortunate events such as hurricanes, terrorist attacks, wildfires, etc. happen out of nowhere. Of course these tragic events happen during strong markets, but the market tends to be more resilient and ignores them when things are healthy. When the market is vulnerable, bad events become excuses for more downside, but the warnings signs are always there beforehand.
2) The market is a beast of its own, respect it and don’t argue with it! The market doesn’t care if you have kids to feed or a rent payment to make. It will chew you up and spit you out! When the warning signs show up, listen to them and don’t be stubborn!
3) I have no idea if the market or $AAPL will be down big when everything reopens, or if the market will brush it off. My guess is the storm will be an excuse to continue selling off an already vulnerable market.
My thoughts and prayers go out to everyone affected by this horrible storm. At the end of the day, there are WAY more important things than the market. I just find it amazing that the market tends to foreshadow unfortunate events. If you listen to the message it’s giving you AND actually have the courage to act upon it, it could save your portfolio from an unnecessary hit in the future. Be safe and God Bless You!