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How To Know When The Crash Is Over

Mar. 02, 2020 10:33 AM ETSPY, TLT14 Comments


  • Is the worst over? There are proven leading indicator helps determine that answer.
  • It seems almost too obvious a low is in.
  • The important thing to keep in mind is that defensive posturing momentum remains intact.
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The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown. - H. P. Lovecraft

My last article "We May Be In A Crash, And Here's Why" got quite a bit of buzz and attention since publishing it Thursday morning. Some saw the article as a contrarian sign that markets are on the verge of a melt-up and the bottom is in. Others saw the signals I brought up as clear warning signs that things are going to get uglier.

As mentioned before, the objective in my writings is not to create fear or panic. I'm a portfolio manager as well and never want to see things collapse as they did last week even if my clients benefit from it because at the end of the day, I'm still a citizen participating in our economy. But I have to call things as I see them, not based on subjective opinion, but actual proven leading indicators to risk.

On that point, last week is a perfect example of why I prefer to follow unemotional, objective, and non-traditional signals. Members of The Lead-Lag Report every week get risk signals broken down by time frame that help guide a portfolio into either risk-on mode (equity heavy), or risk-off mode (bond heavy). Each one of those signals referenced in the Lead-Lag Report has been thoroughly tested in four award winning white papers I co-authored and which I've become known for over many years of presentations across the country. On January 27, the short-term signal turned to risk-off, and remained that way.

All my indicators do is help to identify what the weather is - the conditions that favor an accident. It's always impossible to know the exact mile marker I might crash my car, but I do

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This article was written by

Michael A. Gayed, CFA profile picture
Michael A. Gayed is portfolio manager, and author of five award-winning research papers on market anomalies and investing. He has a BS with a double major in Finance & Management from NYU Stern School of Business, and is a CFA Charterholder. Michael runs the investing group The Lead-Lag Report, focused on helping investors outperform in all market conditions. It offers a tactical, data-driven approach to investing, to achieve long-term success even in the face of uncertainty. With increasing market volatility, it's essential to understand risk-on/risk-off signals, seize high-yield opportunities, and leverage award-winning research to maximize returns. Learn More.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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Comments (14)

thanks for a very informative article, and for quantifiable targets in following the markets. A question: the charts used (XLU and TLT), will, or should work for the general market. But what about specific sectors like Health Care or Consumer Staples? Particularly with Biden looking like the Dem nominee?
What crash?
Walt Morton profile picture
If history is any guide, and I am referencing major crashes and lesser but notable “corrections” and “sell-offs” in 1929, 1937, 1962, 1989, 1990, 2000, 2007-2008, and 2015, then it typically takes a year (or more) for a crash to find a bottom. On the way to the bottom there may be many "up" days or even months but until the coronavirus situation feels under control, there is still much risk and that will push markets downward until all the risk is priced in.
TruffelPig profile picture
Bonds didn't rally today......pretty much nothing in the end after 10 year at 1.03%..... the sizes of the recent moves are scary - this can go rapid also down again. Still 70% cash, sold some stuff today.
Sisyphus12 profile picture
brave or comfortably "lifetime" rich, I'm at 20% cash (20 years from retirement (and I feel naked, curious as to what you are still holding?
the best indicator would be bond yields if 10 year t bill yield drops to below 1 pct then the stock market will go up later. the reason being, dividend yields of 5 -6 pct will entice portfolio managers to start buying.
Buyandhold 2012 profile picture
How to know when the crash is over?

Stock prices rise for at least three months.
Ant buying anything until the vix is below 20. Still at 30
Illuminati Investments profile picture
Aren't you supposed to "buy fear"?
02 Mar. 2020
It won't be in the charts, it'll be when enough vaccine is administered to provide "herd immunity".

Recent reports show that at-least some (how many?) "recovered" people can still transmit the virus afterwards. Look up the San Antonio TX patient.

This means that a place like Wuhan cannot lift quarantine and resume business without a genuine probability of reigniting the illness elsewhere.

This means that places like the US that will not quarantine effectively will have increasing spread and more economic damage.

The end effect is a continual slowing of the economy as more places are brought off-line by the virus.

Until an effective vaccine.
@njbr - an effective vaccine? Yes , but the problem will be that in a largely privatised, for profit health system in the US, how many people, newly unemployed by the economic effects of the virus, will be able to pay for it?
Then you have the problem of low "herd immunity" and the nationwide impact of that.
Please link the reports. Accurate info is really scarce!
You should get editors to change your bullet points to reflect what you said.

It seems almost too obvious a low is in ... that it makes me think it's not.
MacAfrican profile picture
IMHO the long overdue correction has a long way to go. To where? To a point where valuations are sane when looking at operating cashflows. It is complete madness that in the middle of a market correction (capitalism 101), central banks are stupid enough to put out statements that they will lend support to markets. We live in a crazy world of never ending taxpayer funded quantitative easing. Except, there is nothing left in the tank. What next : negative 2% interest rates?

Who runs our countries? Bankers and brokers and financial media? This was an amazing more than decade bull market, it cannot and should not be kept on life support.
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