Comparing the Past Initial Crash Low Breakdowns

Let’s say you have a stock market crash, you set the initial crash low, then you break below that low either days, weeks or months later. What happens next? Well its a mixed bag. A lot of people would expect the start of a second leg down, however, since the all-time high, there has been 2 major crashes that I can account for. We have the 2008 financial crash and we have the 2010 flash crash. What happened after we broke below the initial crash low?

And just to make clear on what I mean by “Initial Crash low”—I am talking about the low we set as we are crashing before any pause from the selling.

$SPY - SPDR S&P 500  Weekly Chart

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008 Financial Crash low

As you can see, we hit our initial crash low of $83.14 on the week ending October 10, 2008. This was followed by a few weeks of violent consolidation which ultimately saw a breakdown of the low on the week ending November 21, 2008. Even though we broke and closed below that low, we made a slight bounce before ultimately selling off to our March 2009 low. So even though we saw lower prices eventually, it did not happen rapidly at once and instead happened on a retracement after the initial break of the initial low. The percent change from the initial low to the final low (in March 2009) was 19.71%.

2010 Flash Crash

On May 5, the day of the flash crash, we set our low of $104.45. This was not breached (and by breached I mean broke and closed below) until the week of July 2, 2010 when we broke it and set the low of $100.60. However, this was NOT followed by lower prices as that was the low of the year. We went on to have a huge rally to end the year. The percent change from the initial low to the final low here was 3.69%.

Present

Well, we set out initial crash low of $110.27 on August 08, 2011. We did not brake this low until this week. However, unless we take a major turn for the worst on Friday (possible) and close below 110.27, this initial breakdown of the low this week would be classified as a fake breakdown in my books. However, it will be interesting to see if this was THE low of the year or if this is just tormenting of the bears before the actual next leg lower. What do you think?

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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