Nov. 26, 2021

When Markets Crash.

There's an interesting story about Peter Lynch, the legendary money manager for Fidelity's Magellan Fund. Peter who was known for never taking a vacation, at last, decided to take some time off. So, he traveled over to Scotland, where he was playing some golf, and just relaxing.

When the Crash of 1987 struck. Now, this was well before cell phones. But it was vital that the traders and managers speak to their star adviser, as sell orders were coming in by the boatload.

Peter would need to liquidate some of the stock position to meet redemptions. As the story goes, Lynch was literally caught on the course, and for the next several hours called in his sell orders to the trading desk.

I suspect that much the same thing is happening right now. Although it's easy in this era of instant communication. Still, the managers of large funds, are no doubt being called upon to liquidate and meet today's redemptions.

And as you can imagine, their sell orders will be added to those already in line. And you have the potential for some real downside momentum.

Just for a little perspective, this was a decline that began last night, where the Nikkei is down over 2%. Then it spread to Europe, where most of the major exchanges were also down 2% or more.

And, the futures are indicating that it will come to our shores when markets open in a little more than an hour from now.

Now, this morning's trigger is attributed to a new strain of the Covid Virus. One that seems immune to the vaccine.

But as any long-term observer of the markets will tell you. Markets never go in straight lines. More like a wave lapping on the shore. First, the tide comes in, and each wave is higher and higher. But then the tide goes out, And the waves fall back.

For me one of the best immediate measures of how serious an initial move like this is. Is to refer to some sort of bench market.

My favorite, for times like this, would be the 50-day moving average.

For the Dow Jones Industrial Average, it's 50 days moving average right now stands at 35,258. And Dow futures are trading currently well below that level.

An indication that this move likely has momentum, and should be watched carefully.

I know it's early. And I know it's your vacation.

But this is important.

Peter Lynch would understand.