For the second day in a row, the Dow Jones Industrial Average closed with a loss of more than 500 points. Over the past two trading sessions, the Dow, S&P 500 and NASDAQ have all lost more than 3% per share. So, what caused this crash, how long is it likely to last, and how can money be made as stocks tumble? I’ll answer all of these questions in the comments below!
What Caused US Markets To Crash
As with any crash, there are several factors that should be taken into account when assessing what caused the crash and how long it’s likely to maintain downward momentum. With that said, in this particular case, the declines were long in the making. They started years ago when the Federal Reserve made the decision to reduce interest rates to a record low. As a result, investors didn’t have to worry about the level of risk they once did; and risky moves started to be made. This carefree investing caused valuations to skyrocket; ultimately priming the market for a crash.
Toward the end of 2014, the oil market crashed. Because the US is an oil producing country, the low cost of oil placed strain on the US market. After all, the energy sector plays a key role in the GDP of the country. From then to now, the Greek debt crisis raised questions with regard to the economic stability of Europe and China’s market fell so hard that it prompted the government to devalue the currency.
So, for visual people, the excessive risk taking in the market led to a valuation bubble. Then, the oil crisis, European economic concerns, and Chinese market crash became the needle that popped the bubble.
How Long Is The Crash Likely To Take Place
First off, I’m no psychic. I can only use the data I see to make predictions. With that said, no one can tell you exactly when the carnage in the market is likely to come to an end. However, I can say that the end is not likely to be tomorrow. The reality is that even after the massive losses the market has taken over the past couple of days, valuations are still incredibly high. So, there’s going to be resistance as a result.
Even if there was no strong resistance left, market crashes tend to change the mindset of the investors that move the market. Bearish moves ultimately cause bearish opinions leading to more bearish moves. Also, considering the fact that China is still struggling, Europe is having a hard time, and it’s becoming harder and harder to sugar coat US economic activity; chances are that the declines will continue.
How To Take Advantage Of The Trends
There are several moves you can make. First and foremost, all US indices are likely to continue falling. Also, high valuation stocks like Amazon are going to continue to take a beating. So, there are a few trades that can be made throughout the day. The bottom line is that you won’t be bored. Watch these assets looking for slight spikes in their value. When the spike reaches resistance, and it will reach resistance, purchase put options to ride the trends down.
What Do You Think?
Where do you think US markets are headed and how do you plan to take advantage of the trends? Let us know in the comments below!