Is It Over? One Simple Reason It Is Not

Depending on how you define a crash, we’ve had one.

In the old days a crash was any fall from the high of 25% or more. The S&P 500 fell 26% from the high to the recent low.

Here is the chart:

This chart shows the beginning of the fall, which is when a bear market starts, not after the market had already fallen as the revisionists would like you to understand it. This bear market started on January 1 when the market understood the Federal Reserve was going to cut off the free money.

It’s a pretty clear trend.

The recent rally gives hope but that is what bear market rallies do.

Let’s look at this chart close up:

That is quite the clear trend so the call becomes very simple. Is it over or is there another leg down?

First the trend volatility is huge. That means what is driving the market is a large amount of uncertainty either way. Noise = volatility and noise = randomness. We are in the land of big random.

If you take the random out, you still aren’t smiling:

On the plus side you will have a strong clue it’s all over if the index busts out of these tramlines, but the question is, what could make that happen?

Of course, the answer is a reverse by the Fed and the printing press running again. That seems to me to be a forlorn hope but as the markets are now driven by politics it’s not completely off the menu.

So at a snap we can expect an imminent pull back.

For me I find myself looking for more abstract questions to ask to make the “have we seen the bottom yet?” call.

My question is, where is the Enron, where is the Lehman/BearSterns etc., where is the corporate collapse that defines a crash?

You might say it has just happened and it is FTX in cryptoland. That isn’t impossible but for me crypto is a “canary in a coal mine” not the coal mine itself in this situation. FTX is the overture for the “real economy.” In the real economy, this kind of default is yet to happen. No one is even calling out the sector it could happen in.

Yet things look grim, there looks no end in sight and normally in these environments things break when we hit the bottom.

Nothing broke yet.

So can we have seen the bottom?