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Show HN: Is the stock market going to crash?

isthestockmarketgoingtocrash.com

271–280 of 338 posts

Re: Show HN: Is the stock market going to crash?

#271

The metric used to calculate market overvaluation is interesting but it has little value for predicting a stock market crash. Let's take he last 3 major US crashes: 1987: this crash was caused by automated trading systems which could run wild in the absence of any prevention regulations such as circuit breakers 2000: the collapse of the dotcom bubble 2008: start of the financial crisis caused mainly by opaque credit…

No, the 2008 crash wasn't a black swan. It just came from the debt side, rather than the equity side. It was clear this was coming. In 2004, I wrote this, on my "downside.com": [1] The next crash looks to be housing-related. Fannie Mae is in trouble. But not because of their accounting irregularities. The problem is more fundamental. They borrow short, lend long, and paper over the resulting interest rate risk with d…

so "black swan" is a paradox. a black swan is when something that happens outside of the models. it being in YOUR models means it wasn't a black swan for YOU.

as such there are probably no such things as black swan events. I mean, until there is. Its more like Schrödinger's swan.

Re: Show HN: Is the stock market going to crash?

#272
post #83

The volatility index, or VIX, has become a popular measurement to reference in the context of predicting the market over the past couple years. The problem is that it does not seem to have any real predictive power and I have yet to see any shred of evidence that the VIX has been shown to have predictive power over the future value of the stock market. It is calculated from past price variance and is used in calculat…

There is actual money behind the number of the VIX, but I'm not sure if you'd call it value.

There are ETFs and other vehicles that buy VIX futures, and either go long or short, which people can buy and sell. Like TVIX, XIV, etc.

There's some worry that a quick spike in VIX futures from such a low level at the wrong time could cause a catastrophic unwinding of these instruments.

But I'm not an expert in these things.

Re: Show HN: Is the stock market going to crash?

#273
So VIX doesn't give an indication of much. The VIX formula has changed so many times, and the human behavior around the assets that VIX tracks has changed to reflect those changes and the new products those changes are based on.

Different people gamble in weekly S&P500 options than gambled in monthly S&P500 options. Different people gamble in the 5 consequetive week at any given moment weekly options, than gambled in the single week at a time weekly options.

The options market itself has had ebbs and flow in interest.

And the self fulfilling prophecy of keeping the market propped up when everyone buys PUT options expecting it to crash has disillusioned a lot of people from participating at all. People know what the central banks are up to, why pretend to have confidence in any of it. The Swiss bank is printing money to buy US stocks for free. Everyone's creating money through new bond issuances to buy things for free.

This all contributes to a lower VIX.

Re: Show HN: Is the stock market going to crash?

#274
post #222

>The VIX is generally consistantly low (10 - 15) until it isn't. To get a sense of what a crisis would look like, we can compare to a few historical values. What's the point of using a metric that can turn on a dime in a predictive model?

People use a low VIX to represent complacency, which is typically present before a market crash, along with the famous irrational exuberance.

Once it goes up, it means there's volatility in the future coming, because the VIX is based on S&P 500 options.

Re: Show HN: Is the stock market going to crash?

#275

Earlier quoted context omitted.

Yes and no. It depends what type of technical analysis you are doing... If your technical analysis has no other inputs except the price(over any period(s) of time), then you may as well go buy a lottery ticket. If you are wondering which category you are in, if at any point during your "analysis" you find yourself looking for things with names like "evening star", "bullish engulfing", "head and shoulders", etc.... sa…

Can anybody explain the fundamental reason behind "resistance/support lines" in technical analysis? I'm guessing it is a self-fulfilling prophecy (everybody believes in it, so it becomes true), but perhaps there is a logical explanation that I'm totally missing.

Quoting from Bruce Kamich's How Technical Analysis Works:

Support and resistance areas form because market participants remember price levels, and they tend to react as a group when a stock returns to those prices. A simple example will make the concept easy to understand. Let's imagine that you and other investors bought a stock at its initial public offering price of $20. People who did not buy the stock at the offering price are interested in buying it at that level, and they buy the stock at $20 or perhaps above $20 as interest in the stock builds. Other buyers come in and the stock trades up to $22.

The stock may trade back and forth between $20 and $22, but let's imagine that at some point the stock slips down to $16. Some traders will hold on to the stock, hoping that its fortunes will reverse and it will trade back above $22. But if the stock remains depressed, owners of the stock who bought it in the $20 to $22 area will begin to think it would be nice just to break even. If the stock does trade back up, the desire to get out at break-even will become even stronger as the stock approaches the $20 to $22 area.

To put this price zone into perspective, the more sideways trading that occurs, the greater the supply of stock will be. There will be more people who want to "get even," and therefore there will be more resistance to the stock's advance.

Support and resistance are not precise concepts. When support develops during a decline at a price short of the exact level, it is usually because traders are anxious. They remember the prior resistance level at $22, but they start buying on the way down at $22.75 and $22.50 because they are anxious or even fearful they will not have the opportunity to buy again at $22.

On a few occasions, eager traders might push a market too quickly through a support level, and support might not develop until just beyond the support area. Whether support is found short of the expected level or just beyond the level will tell you how eager or fearful traders are.

We have seen that when support is broken on the downside, it then becomes resistance. The opposite is also true; resistance, once broken, becomes support. This reversal of roles is due to the memory of traders and investors who want to get out of their losing trades at break-even, and traders who want to increase winning positions by buying more stock at or near support.

The role reversal of support and resistance leads to the formation of trends, because in an uptrend, market pullbacks or reactions will tend to find support at the last resistance level. In a downtrend, reactions or rallies will tend to find resistance at the last support level.

All support and resistance levels are not equal. The strength of a support or resistance level depends on several factors, such as the number of times the level or area was tested, the volume of trades transacted there, how long ago the formation appeared, and whether it was a round number of a "big figure." Even knowing the type of security will help in determining the validity of the support or resistance area.

The more times a level or zone of prices is tested, the more important that level becomes. A level that is tested six times and holds tends to be more important that one that was tested only twice. The more times a support or resistance level is tested, the more traders will remember it and the more traders will be likely to be committed near it.

When a large volume of trading occurs in a support or resistance area, that adds to its validity because a greater number of traders and investors will remember the level, so their commitment to the level will likely be greater.

The further back in time the support or resistance area was formed, the dimmer the memory, and the more likely that people have already acted on new information and may not respond in the same way again. They moved on by liquidating their positions. An area of support or resistance that was formed recently tends to attract a greater number of people who are still committed to the level. Thus, these nearby levels have more validity or potency.

When a support or resistance level forms at a round number or a big figure, such as $100 or $1,000 or DJIA 10,000, many more people will remember the level because it is easy to remember and obvious. In turn, the more people who remember and act at that level, the stronger the support or resistance will be.

Re: Show HN: Is the stock market going to crash?

#276
post #153

Earlier quoted context omitted.

student loans.

The government owns student loans.

> The government owns student loans.

To back up your point, the US federal government guarantees the vast majority of the student loan market: https://fred.stlouisfed.org/series/FGCCSAQ027S

I believe the total student debt market is estimated somewhere between $1.3-1.4 trillion these days, so at least 77.5% backed by US taxpayers. I don't know what TARP topped out at, but I doubt it was 75% of banking assets.

Re: Show HN: Is the stock market going to crash?

#277
post #6

What about student loan debt, how does that factor into the economy or the stock market being affected? Right now student loan debt is at 1.4 trillion source: https://www.debt.org/students/

The vast majority of student loan debt is already guaranteed by the US government: https://fred.stlouisfed.org/series/FGCCSAQ027S

So something like 77.5%+ of that is already bailout guaranteed. Taxes (or more likely US debt) will rise to cover it, which will have its own long term negative effects, but barring a US default that market is very well covered.

It's also very, very challenging to discharge US student loan debt, much more than housing debt. How that really works in the end, especially if a large number of people go into default, hasn't really been tested, and it will be a political hot potato when it does.

Re: Show HN: Is the stock market going to crash?

#278
post #135

Earlier quoted context omitted.

No, the 2008 crash wasn't a black swan. It just came from the debt side, rather than the equity side. It was clear this was coming. In 2004, I wrote this, on my "downside.com": [1] The next crash looks to be housing-related. Fannie Mae is in trouble. But not because of their accounting irregularities. The problem is more fundamental. They borrow short, lend long, and paper over the resulting interest rate risk with d…

What looks risky now?

Subprime auto loans.

Re: Show HN: Is the stock market going to crash?

#279

Earlier quoted context omitted.

No, the 2008 crash wasn't a black swan. It just came from the debt side, rather than the equity side. It was clear this was coming. In 2004, I wrote this, on my "downside.com": [1] The next crash looks to be housing-related. Fannie Mae is in trouble. But not because of their accounting irregularities. The problem is more fundamental. They borrow short, lend long, and paper over the resulting interest rate risk with d…

so "black swan" is a paradox. a black swan is when something that happens outside of the models. it being in YOUR models means it wasn't a black swan for YOU. as such there are probably no such things as black swan events. I mean, until there is. Its more like Schrödinger's swan.

For this kind of event, you can see the pressure building up well in advance. Often, it's not clear what's going to break, but at some point, something has to give. A real "black swan" event was Hurricane Sandy. Flooding of Lower Manhattan was not expected.

Re: Show HN: Is the stock market going to crash?

#280
post #135

Earlier quoted context omitted.

What looks risky now?

> 2009-05-31 - Conventional wisdom > The future is now in the hands of political forces. We can't predict that from fundamentals. So we have no further predictions at this time. So diversifying ones portfolio based on ones portfolio exposure to "political risks"? Usually you see people trade on that in currency markets? If most of ones portfolio is dominated by a single currency (and hard to liquidate to another asse…

That reflects the TARP bailout and the Fed's policy on interest rates. The Fed bailed out the banking system by lending money to banks at very low rates, which they could then profitably re-lend at much higher rates, allowing banks to pay back the TARP loans. My point was that this was a political decision, one not predictable by financial analysis.

Through all that neither the dollar nor the Euro moved all that much compared to other markets. Housing, oil, stocks, and gold all moved more.

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