If anyone has not noticed, the market has changed from rewarding buying the dips to rewarding selling the blips.
Selling the blips is how smart money leaves markets. Smart money is also big money. There is too much of it to fit through the exit door at the same time. That is why market crashes rarely occur in a day (August of 1987 was an exception) or even short periods like a month. Even the Great Depression took multiple years for the stock market to reach its ultimate bottom.
Why Wall Street Is Always Positive Regarding Markets
Maintaining positive market psychology is always pushed by Wall Street. In good times optimism drives markets where the big money wants them to go — up. In bad times, Wall Street may or may not recognize what is happening but it pays for them to be bullish nevertheless. Optimism tends to keep naive investors in markets which cushions the declines. This optimism also produces upward blips which are used by the smart money to exit with much of their profit intact.
Market Declines
Markets rarely go straight up or straight down. To rise markets need liquidity or additional funds. Quantitative easing provided this need quite nicely. Its sustained use provided the market advance seen in the chart below. Supplementing the liquidity infusion was the financial repression policy employed by the Federal Reserve. While they were flooding the system they were also driving interest rates to near zero, forcing monies into equities because it became the only game in town.
The chart below is SPY, an ETF that mirrors the performance of the S&P 500 index. Each bar represents monthly data. SPY bottomed in April of 2009 at around 67. This drop was from about 157 reached in November of 2007. It took about a year and a half for this decline of about 55% to play out.
