Stock Market drop more than a scare?

2 weeks ago 0

Friday and Monday the markets saw the biggest two-day drop since June 2016—going down 1,500 points and closing at 24,350. The biggest question around Wall Street is if this is a short-term correction that is going to continue to rally, or is this the beginning of a new trend.

Within the market you have the Bulls and the Bears fighting against each other and thought to be named after how each one attacks. The bull thrusts its horns up into the air, converted into the markets going up. The bear attacks with both arms throwing itself down, this correlates to the market dropping over a period of time, usually a few months and longer. The Bull Run has been going for a few years and recently the Dow Jones has been making new records, most notably where it struggled for a few months a year ago when it broke 20,000. At the beginning of January it broke 25,000 and in ten days broke 26,000, topping out at 26,500. A mere two trading days later it managed to drop near 25,000 again.

Fundamentally the market can continue to go up; we have better earnings and increased wages. Through technical analysis, January has had one of the best monthly performances since October 2015, and in just two days has reversed not only January, but also some of December. If it is able to sustain above 24,500 we could see a new clear bottom, or a double top. If it tries to correct and does not, we could see another 2008 recession. Looking at the charts of now, 2008, and 1929, with how fast the market had accelerated constantly getting steeper every day, it looks more like 1929.

It might take a month before the final drop where the DOW could drop near the 15,000 mark, only 1,000 more than the top of the ’08 crash where it dropped 50 percent before correction. 15,000 is still above where ’08 topped out at, but any time you lose 50 percent of the market in a year, even two years, is not good. In both the 1929 crash and 2008 crash the market dropped 50 percent, in 2008 we were more prepared to keep it less devastating across America. The recession in 2008 was due to increased interest rates and variable interest loans increased that most Americans were not ready for. Once again, the Fed is expected to increase rates, this time it is at a faster pace than planned.

After Friday and Monday, traders and investors want to know if this is a short term correction, or something bigger. If investors think it is something more and decide to sell, that would just drive the markets lower. In the last two trading sessions the market wiped out January and started going into Decembers gain also. After a slight struggle getting past 20,000 the Dow has continued to make new records getting up to 26,500 last month. The drop could be due to the fear of the Fed increasing interest rates faster than normal. Our last crash in 2008 was due to variable interest rates kicking in that Americans were not ready for. The Dow dropped near 50 percent in both 2008 and 1929 and if that happens this time, we need to start preparing with an individual emergency budget. Hopefully America has learned from the last two crashes and does not affect much. Hopefully if the markets do go down, it does not go down nearly as much or fast as 2008 or 1929.