No. of Recommendations: 1
I wonder if the previous rules of market behavior don't apply anymore? ("This time is different") I say that because so many people have been acclimated to "buy the dip" after every small drop, and many are still doing so (buying) after big drops like we've seen recently.
Of course we all know that it is NEVER different [this time]. The folks who work on Wall Street *love* those who buy the dips because that's how they unload stuff at higher prices before declines continue. It's only after "capitulation" that's it's all over and it becomes safe to buy (for those Wall Street folks) again.
No. of Recommendations: 1
But I don't think it is always clear when capitulation is reached. It could down 30%, then rally 8%, and then go down another 20%.
No. of Recommendations: 14
It could down 30%, then rally 8%, and then go down another 20%.
It could do all that a number of times.
Say one considers "cheap" to be the 20th percentile of trend real earnings yield since 1990. i.e., things were cheaper than that 20% of the time, and more expensive 80% of the time.
At that cheapness boundary, the S&P would be at 3245 today after inflation, down 35% from here.
At the valuation level of the 2009 lows it would be at 1866, down 63%.
At the lows of 1982 it would be at 1017, down 80%.
We know all of those situations are possible because they already happened. Prices can do anything for a while, and often for longer than you might imagine.
Jim
