Mohan et al,
A market correction may take more time than it took in 1987.
In 1987 there was extensive use of "portfolio insurance," whereby portfolio managers sold futures as the market dropped, according to some predetermined plan. The arbitrageur who sold the future would then sell the underlying basket of stocks to hedge his position, thereby driving stock prices down further. Thus, the market may have artificially corrected in a single day, rather than more gradually, as it might have if driven by human emotion alone. Historically, most corrections have played out over years. Even the 1929 correction, though initially severe, didn't bottom until 3 years later. lowrisk.com
There may be enough "hot money" circulating the globe, that whenever a market drops a significant amount, someone will speculate on a bounce. Today, the behavior of the collapsing Asian markets may serve as a better model for a market correction.
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John. |
