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The divergence that kills the bull


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#1 diogenes227

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Posted 24 October 2018 - 01:40 PM

From the link:

 

 

Each time the levels of margin debt in 2000 and 2007 became unsustainable, the subsequent decline led to bear markets in which the S&P 500 index declined 40% to 50% (see the charts below), and now when it drops it will be dropping from an even higher height.

 

Can a 40-50% bear market happen again? You can bet half your portfolio on it.

 

Once margin debt begins to unravel, it will feed on itself — when the margin calls come, it is either put up more money or sell the stock. Selling the stock drives it lower and brings more margin calls. Nothing else will matter, not fundamentals, not news, not hopes, not dreams.

 

For more perspective, discussion and the charts:

 

THE DIVERGENCE THAT KILLS THE BULL


"If you've heard this story before, don't stop me because I'd like to hear it again," Groucho Marx (on market history?).

“I've learned in options trading simple is best and the obvious is often the most elusive to recognize.”

 

"The god of trading rewards persistence, experience and discipline, and absolutely nothing else."


#2 CLK

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Posted 24 October 2018 - 04:43 PM

Nice up to date charts, don't know what happened with DR Short, maybe he requires a subscription to get real time data.

 

Anyway, that was the divergence I was looking for, new highs but lower margin debt, some of the smart money exited near the top.

 

Long trades are not worth the risk anymore because you can't get much mileage before another 100 down. Too bad it's got to drop 40% before the IT investors call it a bear market, kind of too late then.


Edited by CLK, 24 October 2018 - 04:45 PM.