Technical Analysis of a Stock Market Crash

In this video, we show how the 1987 stock market crash and the 2000 dot com bubble displayed signs of weakness first. Many traders believe it is less risky to try to call the top. If you can call the turning point, and the market never goes against you, it is less risky, but the probability of calling the top is low. Waiting for some signs of weakness in 1987 and 2000 would provide more "tradeable opportunities".

The 1987 crash was a 4 day crash that started on Wednesday, October 14, 1987 with an accelerated down trend with the following moves:

Wednesday 10/14/87 = -2.96%

Thursday 10/15/87 = -2.34%

Friday 10/16/87 = -5.16%

Monday 10/19/87 = -20.47%

If the Nasdaq 100 closes down today more -2.5% on the day, it will be the first close of -2.5% or more since December 14, 2022. Yesterday, marked 395 days in a row where the Nasdaq 100 didn't have a down close of that magnitude, the longest streak in the Nasdaq 100 since it started. The available liquidity has extended trends longer that we have ever seen and crushed volatility in favor of passive investors more than what we typically see in freely traded markets.

We aren't calling a top or a market crash since that is difficult to do. As a short term trader it is typically best to pay attention to the long term trend. Shorting new highs is capital intensive and can lead to large drawdowns. Ultimately, we want to use this information in our algorithmic trading.