Market Tops taking place at a Breakneck Speed

Speed racer cartoon
September 7, 2022 by Matt McCracken

Starting with QE in 2010, the stock market started to see a series of incredibly quick V-bottoms.  While bottoms were violent affairs in which losses were quickly recovered, tops were gradual, slow-moving events.  But that has all changed in this decade.  Over the course of the past two-and-a-half years, market tops have become just as quick and violent as market bottoms.

Starting with the 2000 bust through 2019, the stock market experienced 18 corrections on an intraday basis.  A correction is defined as a 10% decline from a peak in prices.  The time span from peak to 10% correction was, on average, 42 calendar days or six weeks.  (i.e. Approximately 30 market days).   During the prior two decades, only twice did a 10% correction take place in 21 calender days or less.    

In the two-and-a-half years since Covid, there have already been five 10% intraday corrections, the most recent completed yesterday, November 6th.  These corrections have taken place at a breakneck pace needing just 19 calendar days to reach the 10% correction mark. (Approximately, 14 market days).  Of these five corrections, four have taken place in 21 calendar days or less.  So, what only took place twice over the span of 20 years has now taken place four times in just over 2 years.    

Suffice it to say, markets are moving much, much faster than they ever have before.  And this stands to reason as the stock market copes with record-breaking leverage coupled with computer-driven algorithmic trading. 

In my update that I posted earlier this week, I outlined the specific themes that defined each decade for the past 100+ years.  The most recent decade was defined by Quantitative Easing (QE) which resulted in swift, violent bottoms that always led to the market recovering losses quickly.  Could this decade be defined by tops that are just as swift and violent?  It is far too early to tell but certainly, something investors should be cognizant of.