Monday, October 03, 2011

Ritholtz: 5 down months, then what?

Barry Ritholz has an interesting look at what happens to the stock market after five down months in a row (link). This time might be the worst of the worst, but even then -40% after a year is about the worse. For two months out, another -9% is the worst historical case and that was in 1974, one of the worst bear markets ever.

As I often write, corrections, bear markets do happen, however, it is rare where they go straight down.

Even with the data, I certainly wouldn't bet the farm on another -9% and SPY 100 holding. SPY is at the 110 support level right now. So many other markets have broken down, SPY may break down as well. Still, the data is intriguing and I may take a flyer on some new SPY short put backratios (hedged positions that are net long but with an explosive profit at lower price targets).

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