r/valueinvesting
At what point does a market dip become a market crash?
Seeking indicators to distinguish between a normal market correction and the start of a crash, inviting both bullish and bearish views.
I've noticed that every time the market pulls back, opinions split into two camps.
One side says it's a normal correction and a buying opportunity. The other side says the warning signs are there and a larger crash is coming.
What indicators or data do you use to tell the difference between a normal dip and the start of a real market crash?
Interested in hearing both bullish and bearish perspectives.
You don’t know one until it’s happened
Impossible to know. I thought micron was done when it dropped from 450 to 330.. then it ran to 1k.. soo
Good example. If someone had told me Micron would go from 330 to 1,000 after that drop, I probably wouldn't have believed it. Markets have a way of making both bulls and bears look wrong.
In a true crash, credit spreads blow out. But even that is a lagging indicator.
No one truly knows in the moment and that’s why we show up for this thing day in and day out🫡
Not a clue in the world brother. A pullback would be more welcomed on my end than anything
The real economy usually, corporate profits, consumer spending, employment, inflation, interest rates that sort of thing. Forex Factory has a free calendar with upcoming economic news reports.
Monday will be big. If we continue to bleed out, I'm gonna grab my ankles and get ready to DCA. Lol
20% + is bear market
Unfortunately, a crash is one of those things you won't know you're in until it's happened and you can't really react to it. Just go back to January with gold and silver: you had about 24-36 hours of indicators the top was in followed by maybe about half an hour to react to the fact it looked like the bottom was about to fall out.
Usually, a few things have to happen though before a crash \can\ happen:
1) The market needs to display a change in character. Looking at the weekly timeframe, we did technically set a higher high, but also a lower low. But really, there are two levels that the bears would have to take out to really change the market character. The first we could see tested on Monday, which is around 731 on SPY. Really though, it's around $710-$713 that needs to be taken out to really confirm any kind of larger breakdown. But it's a good start for a flip with essentially a failed breakout pattern showing up last week.
2) A rotation phase has to happen first, as others have mentioned. We've already seen some of that. Some money rotated into software, but even that was falling apart on Friday. There was some rotation into healthcare, staples, and other defensive stocks on Friday. A lot of money can't just easily leave the market, so expect more of that, though there really aren't many enticing options left since the consumer is getting hammered right now, meaning consumer staples at these PEs are just not terribly attractive.
3) I look more for an indication of institutional selling. Retail is typically last to react on a sell-off (though pretty good at guessing good times to buy). BTW, I think this is where a lot of people are getting Friday wrong based on the sheer amount of people I'm seeing across Reddit who seemingly can't wait for Monday to buy the dip. Friday was very indicative of massive institutional selling.
One thing to note about Fridays sector rotation is that there was a massive amount of money leaving the market in every category except staples, a bit of healthcare and water basically. But you had drops in the mega caps, bonds, commodities etc and of course much bigger drops in tech. But then the green in the defensives was actually tiny. A couple of percentages in the green spread across a very small number of stocks. So I wouldn’t categorise Friday as normal rotation.
Wow we haven’t seen these prices since … two weeks ago. Freak out time!
Though think of this… what happens if one of the 3 big IPOs flatlines.. Jsut as a thought experiment imagine spacex has an underwhelming debut. That would fuck anthropoic and possibly even more would duck open ai as they are going to be much more dependent on ipo money to stay afloat
Anthropic is the better company of the 3 and the only one I'd personally invest in. I think their IPO will do great. The other two, we'll see. Doesn't help that all serious analysts report SpaceX to be absurdly overvalued.
A sector rotation can take weeks and months to unfold or years to play out. It took a couple years for tech to bottom out during the dot com bubble.
He’s using AI