Well, Friday was another wild fucking day for stocks. Irrespective of where everything closes, there was no comfort to be found in the price action. The kind of manic swings we witnessed to close the week are indicative of something, and whatever that something is, it’s not conviction.
At one point during the session, before paring losses aggressively, the S&P was on pace to post its worst weekly loss since November of 2008.
There is no sugar coating that. It’s some awful shit. You can’t keep papering over this by reminding people that it’s been one helluva ride on the way up or that over the long-run, things will be fine.
That “logic” would never apply in real-life. Imagine getting shot in the leg and on the way to the hospital your friend says “well hey, look at it this way, you’ve gone decades without getting shot in the leg and odds are, you’re going to survive.”
Additionally, don’t let anyone tell you this isn’t justified. Or that somehow stocks have fallen “too much”. What the fuck does that even mean? What is “too much”? Were we not living on borrowed time?
The answer to that latter question is “yes” according to former trader-turned Bloomberg contributor Richard Breslow who on Friday writes that he is “left somewhat cold to the notion that this [selloff] has sown pain and is destroying wealth.”
“It is what it is”, Breslow contends, adding that it “appears appropriate.”
What’s “appropriate” about it, you ask? Well I can give you a laundry list of reasons why it’s “appropriate”, but for Breslow it comes down to one simple chart.
“One of my all-time favorite charts and a great barometer of the really big-picture state of the market is a monthly chart of the S&P 500 with the 21-month moving average drawn on top of it,” Richard continues, noting that prices have “utterly violated” his magic line since the election “and now there is a price to be paid for it.”
“Even with this big fall, the S&P remains at a highly unusual distance from where history has told us it should be at this juncture,” Breslow chides, before concluding that “if you look at the chart, this price action suggests that it is payback for gains that were borrowed, not earned.”
There you go. Nothing further.