When you expect a big market crash, refer to this chart and go over its history …..

Here are some notable crashes throughout history:

1. Panic of 1907

  • Date: October 1907
  • Cause: A liquidity crisis triggered by the collapse of the Knickerbocker Trust Company and a series of bank runs.
  • Impact: The crash led to a recession in the U.S. economy and ultimately resulted in financial reforms including the establishment of the Federal Reserve in 1913.

2. Great Depression

  • Date: October 29, 1929 (Black Tuesday)
  • Cause: Speculative investments and a lack of regulation compounded by an economic downturn.
  • Impact: The crash marked the beginning of the Great Depression, which lasted through the 1930s. Unemployment soared, and many banks failed.

3. 1962 Flash Crash

  • Date: May 28, 1962
  • Cause: A combination of rising interest rates and a slower economy.
  • Impact: The market declined sharply in a short period, leading to a loss of investor confidence.

4. 1973-1974 Stock Market Crash

  • Date: 1973-1974
  • Cause: A combination of the oil crisis, economic recession, and the Watergate scandal.
  • Impact: The market lost nearly 50% of its value, and it took several years for it to recover.

5. Black Monday

  • Date: October 19, 1987
  • Cause: A combination of high stock valuations, program trading, and market psychology.
  • Impact: The Dow Jones Industrial Average dropped 22.6% in a single day, the largest one-day percentage drop in history.

6. Dot-com Bubble Burst

  • Date: March 2000
  • Cause: Overvaluation of internet-based companies and speculative investments.
  • Impact: The NASDAQ Composite index lost nearly 80% of its value by October 2002, leading to significant losses for investors.

7. Financial Crisis of 2007-2008

  • Date: September 2008
  • Cause: A housing market collapse, subprime mortgage crisis, and ensuing credit crunch.
  • Impact: Major financial institutions failed, and the stock market dropped significantly, leading to a global recession.

8. COVID-19 Market Crash

  • Date: February-March 2020
  • Cause: The onset of the COVID-19 pandemic and fears over its economic impact.
  • Impact: Global stock markets fell sharply in a short period, with the S&P 500 experiencing a decline of over 30% from its peak.

Summary

These crashes highlight the volatility of the stock market and the impact of economic conditions, investor behavior, and external events. Each crash has led to reforms and changes in market regulations aimed at preventing similar occurrences in the future.

Identifying an Oversold Market

An oversold market is typically characterized by a sharp decline in prices, often driven by panic selling. While it might seem like an opportunity to buy low, it’s essential to use caution and consider the following indicators:

Technical Indicators

  • Relative Strength Index (RSI): A value below 30 often suggests an oversold condition. However, it’s crucial to consider the overall market trend and other indicators.
  • Stochastic Oscillator: Readings below 20 indicate potential oversold conditions.
  • Moving Average Convergence Divergence (MACD): A bearish crossover below the signal line can signal an oversold market.

Fundamental Analysis

While technical indicators provide short-term insights, fundamental analysis offers a longer-term perspective. Consider factors like:

  • Economic Indicators: GDP growth, unemployment rates, inflation, and interest rates can influence market sentiment.
  • Company Performance: Analyze earnings reports, revenue growth, and debt levels of individual companies.
  • Investor Sentiment: Excessive pessimism can indicate an oversold market.

Cautionary Notes

  • False Signals: Oversold conditions don’t guarantee an immediate rebound. Markets can remain oversold for extended periods.
  • Market Sentiment: Even if technical indicators suggest an oversold market, prevailing market sentiment can influence price movements.
  • Diversification: Spreading investments across different asset classes can help mitigate risks associated with market downturns.

Remember: Using a combination of technical and fundamental analysis is generally recommended for a more comprehensive understanding of market conditions.