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.
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?]