Let's be clear, the stock market isn't crashing... at least not yet. It is lacking bid support. In theory it's as simple as supply and demand - more buyers than sellers? Stocks go up. More sellers than buyers... stocks go down.
On audio in the chat room at optionmillionaires.com I've been talking about the lack of buyers. We might get pops to the upside, but these pops are being met with heavy selling, of which the buyers fail to appear. Stocks crumble to session lows as the buyers step away and wait for the dust to settle.
Over the last 4 years I've talked continuously about the market, how the central banks are gaming asset prices higher, and how being long is the place to be. I know this unconventional policy is not good long term. I know piling on massive amounts of debt is not a good thing long term. But I'm a trader and I'd much rather make a profit than fight the long term reality.
Since the lows in 2009, when stocks have pulled back, the market crash bears would return and call for a crash.
Crash crash crash.
I mocked them. I did.
The twitter IPO was supposed to crash the market.
The stock market is going to crash!
While I was late to the bull party, I did adapt to the massive asset price inflation scheme. I am now a drooling bull. But a happy one.
When the flash crash killed stocks, I was a happy bear. I was up big on everything. I was up HUGE! I went into the close joyously up. I rock! I am the best trader ever. That weekend the ECB launched a bazooka that killed the Bear in me. On Monday I looked like a fool. Why didn't I sell.
Since that point I have never made the mistake of fighting the ECB or any other central bank. I have been happily long.... until last week. I waved the white flag. And every trading day since we've seen massive volatility and strong selling.
I'm not the perfect trader, but I can smell the rot from a few states away.
Is it the GTAT bankruptcy? Did someone go massively short bonds and now has his gonads on the chopping block? How about the wild swing in the $VXX? In a low risk environment bets are made that look exceedingly foolish when stocks fall.
Something is dying. Some big fund is liquidating. Some huge derivative is blowing up. Something bigger than you or I can understand is going on behind the scenes.
Perhaps this is just a 2011 type pull back. And I do think, from a historical perspective, stocks will break out to new highs. But I also think right now, there is something going on behind the scenes, something we will hear about later, as to why the market is selling off like it is.
The bottom line, in my opinion, is that the central banks have worked too hard to see their handywork go to waste. Stocks will find a bottom, regardless of the behind the scenes carnage, and rally to fresh highs. But my view here, is that nothing we are hearing about now is why stocks are falling. It's something else. And like Ebola.... the Central banks are hoping it can be contained.