≈ There are no facts about the future. ≈
Yesterday’s message introduced you to the concept of equity risk premium and volatility. Today, let’s shed some additional insight into the second topic.
There are no facts about the future. So to inform our plans and expectations, we look to the past for a baseline. The heroic Winston Churchill said the farther backward you look, the farther forward you can see. Since volatility goes hand-in-hand with market downturns, it helps to understand the frequency and magnitude of previous corrections/bear markets.
- If you analyze the S&P 500 over the past century, you discover the following:
- Declines of at least 5% occur roughly 3x a year.
- Declines of at least 10% occur roughly 1x a year.
- Declines of at least 20% occur once every four years or so.
- The average depth of a bear market is -30%.
That said, if you want to really scare the children, mention the 50% crash of 2008 or the nearly 90% nuclear meltdown of 1929.
So, yeah, the market’s volatile, and now you have a general idea of the average frequency of selloffs. I’ll hasten to add they don’t arrive on a set schedule and sometimes crashes cluster.
You, me, and everyone else that wants to build real wealth should celebrate the heck out of the volatile history. As I said yesterday, it’s why equities provide such fantastic long-term returns. It’s compensation for the drama we have to sit through along the way.
Chart of the Day: Is it Over?
If you’re wondering if Tuesday’s roaring stock market rally marks the end of the correction. The answer is a resounding yes. At least, it is if you’re using the CBOE Volatility Index as your guide. It got absolutely crushed, signaling that fear and panic were exiting the building. Good riddance.
Video of the day: Queen’s Court: Hot potential swing trading setups on $AAPL and $AMAT
In today’s Queen’s Court, Coaches Emily and Matt analyze two Hot potential swing trading setups: AAPL and AMAT.
Today’s line up
Traders Lounge 11 PM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
The Coaches Show Replay
If you missed last night’s episode where Coaches Gino Poore and Greg Holmes talked about Trade Management on a Volatile Market or would like to watch it again, check it out here.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.
Trade Masters 7:00 PM EST
Every Wednesday at 7 PM EST join us on the Trade Masters where two Coaches go head-to-head to see who can find the best trading setup.
Trading Justice 454: Tyler Craig on Stock Market Volatility
In this episode, we welcome Tyler Craig back to the podcast to discuss recent market volatility. Tyler is a trading coach at Tackle Trading, veteran investor, architect of the Bear Market Survival Guide, and a great educator. Listen in to the feature presentation to hear Tyler’s thoughts on how to interpret, and understand it. Tyler also discusses the pros and cons of protective put buying, and covered call writing, in markets like this.
Listen to the episode in the player below:
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