The Vertical Climb Phase of the Current Stock-Market Mania

I was a financial professional during two prior stock-market bubbles, the ones that ended in 2000 and 2008 respectively. This market acts and looks (on a chart) very much like those bubbles.  The key is the exponential curve common to each of them. As you can see with the example below, the slope gets steeper until it appears to be in “vertical climb,” going almost straight up. That’s the phase we are in now–the vertical climb phase.



In the vertical climb phase–EVERONE is buying: the last retail investors joined in, foreigners are strong marginal buyers, and short-sellers are buying to cover their shorts. 

But  as stocks go higher in price, it takes more money to accelerate prices higher. Gravity always wins.

 But  as stocks go higher in price, it takes more money to accelerate prices higher. Gravity always wins.

The way it resolves itself is usually with a powerful reversal on heavy volume. For example, the market might open higher one day, then close much lower. It will seem as if a sinkhole opened and stocks fell into it.  This will mark the beginning of a sharp correction that could work lower for several months. The best examples are charts of the NASDAQ and NIKKEI  in 200o and 1991 respectively.

[Authors note: As it turns out, I began drafting this post several days ago, and when I began work on it this morning, the indexes were up about 1% and, now that it is past noon, they have all lost most or all of their gains. Could be the beginning?]



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  1. Avatar
    Lisa Hecht
    January 18, 2018 at 4:22 pm — Reply

    Assuming we accept your reading of the market, what action do you recommend we take with our investments?

    • Avatar
      January 18, 2018 at 4:52 pm — Reply

      As I disclaimed, this section of the site is for education and entertainment. But for education sake, it depends on your risk aversion, your time horizon, and what percent of your assets you have in stocks.

      Wait there’s more: the percentages of household wealth in stock is very high these days. A drop would affect the economy more than in past eras.


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