Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

August Stock Market Flash Crashes Historical Analysis

Stock-Markets / Stock Market Crash Aug 17, 2021 - 12:28 PM GMT

By: Chris_Vermeulen

Stock-Markets

Weakening volume after an extended rally phase is fairly common.  It represents a complacency in the markets where traders/investors are unwilling to chase an extended rally phase at higher prices.  Often traders are waiting for some type of market correction or rotation to happen – which will allow them to deploy capital back into the markets at decreased price levels.  Sometimes, this diminishing volume presents a unique scenario where traders shift their expectations away from traditional “buy the dip” thinking and that can sometimes create what is called a Flash Crash event.

Revisiting the August 2015 Flash Crash Event

In August 2015, a unique Flash Crash took place that prompted a -12.5% collapse in the S&P 500 in just four trading days – after a bout of selling pressure on a Wednesday/Thursday/Friday.  The following Monday, the markets opened with a small lower opening gap, yet traders were unwilling to buy into the ASK and this created a very unique scenario where price exploration created a widening price void.  As algos and computers continued to try to find active buyers in the marketplace, the ASK/BID spreads continued to widen as the liquidity trap had sprung.


Without active participation in the price exploration process (a lack of buyers supporting the market in this case), sell-side systems kept working active orders while chasing the ASK lower and lower through the price void.  This is a type of liquidity trap that unfolds when the equilibrium between active buyers and sellers becomes skewed.  The price void becomes a very tangible liquidity trap that eventually closes after a substantial price move – when traders become bargain hunters and start to fill the liquidity trap.

Be sure to sign up for our free market trend analysis and signals now so you don’t miss our next special report!

It is the opinion of my team and I that the components of a Flash Crash event consist of three unique market dynamics aligning to create this type of outcome.

  • Complacency in the marketplace – or lack of urgency by many traders to understand and recognize the risks within the markets right now.
  • Diminishing Trading Volume – a weakening total volume level suggests traders are not actively engaging in the price exploration process.  This creates the potential for a Price Void to come into existence – disrupting the normal ASK/BID spreads.
  • An Extended, almost ritualistic, price trend cycle that materializes to shake traders away from normal risk protection processes.  In this type of scenario, stops are very wide, or sometimes non-existent.  Traders are committed to the trend and have over-leveraged themselves into the belief that “nothing could go wrong”.

In August 2015, the US markets had been trending higher since the August 2011 deep market correction (consisting of a -22% correction).  The rally from those 2011 lows lasted almost 3.5 years and consisted of a +95% upside price advance before the 2015 Flash Crash.  Average Volume throughout this span of time was near 2.6~2.7M shares a day.  Over the 90+ days before the August 2015 Flash Crash, Daily Trading Volume dropped to 1.3~1.5M shares a day.  Additionally, price had entered a decidedly sideways “melt-up” in 2015 which eventually rolled over after May/June 2015.

As we move forward into this research article, I wanted to bring something interesting to your attention.  Have you noticed the deep correction in 2011 happened in August?  The 2015 Flash Crash happened in August.  The deep market correction in 2018 started on September 2, just days after August 2018.

Historically, August typically shows a nearly 2:1 downside propensity over the past 28+ years (for the SPY: 13 years showing an average of -6.34 vs. 15 years showing an average of +3.45).  The largest Monthly positive and negative values for the SPY are +8.82 and -14.42 respectively.  In other words, the month of August, or transitioning into September, can be full of very big surprises at times.

Current SPY Diminishing Volume May Be Setting Up An August Surprise

The continued melt-up over the past 8+ months since the November 2020 elections may be presenting a very real opportunity for another type of August volatility event.  We are starting to see weakening volume while the SPY continues to grind higher in a more narrowing range.  Recently, the dramatically weaker trading volume seems to have fallen off a cliff over the past few weeks.

The 2015 Flash Crash set up on the week of August 10 through August 14.  Oddly, today is August 12, 2021.  Are we setting up for another type of volatility event, or Flash Crash, right now with this diminishing volume?

S&P 400 MidCap Futures Show A Very Clear Diminishing Volume Setup

Historically, the average volume on this MC, S&P 400 MidCap Weekly Chart, has been somewhere near 65,000 to 75,000 over the past 2+ years.  Currently, the average Weekly trading volume has dropped to approximately 38,000 to 44,000 over the past 6+ months.  Additionally, we’ve seen a dramatic decline in volume over the past 3+ weeks – almost as if volume levels have fallen off a cliff while price has continued to move in a decidedly sideways price channel.

As we continue to push through the month of August, it might be wise to reconsider risks related to an August surprise while continuing to focus on protecting assets and growing wealth over time.  We are not trying to push any fear into your heads related to our research, we are simply pointing out the similarities to the 2015 Flash Crash and the August Surprise events that have taken place over the past 8+ years.

Our data shows that August typically presents a 2:1 downside price volatility exception even though August has historically been higher 15 of the last 28 years.  That means that August may continue higher with a nearly 55% chance of no August Surprise event.  But the flip-side of that is there is nearly a 45% chance that a broad downside market event will take place in August that may be in excess of -6.34 to -14.42 points for the SPY.  Translating that for the MC would represent -50.33 to -95.5 points with roughly the same accuracy ratio.

One thing is certain, there are only about 12 more trading days in August 2021.  We’ll know soon enough if there is going to be any type of volatility event associated with the diminishing volume we are seeing in the markets right now.  There is not much time left for this event to take place – only about 15 to 25+ days based on our expectations.

More than ever, right now, traders need to move away from risk functions and start using common sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

Have a great day!

Chris Vermeulen
www.TheTechnicalTraders.com

Chris Vermeulen has been involved in the markets since 1997 and is the founder of Technical Traders Ltd. He is an internationally recognized technical analyst, trader, and is the author of the book: 7 Steps to Win With Logic

Through years of research, trading and helping individual traders around the world. He learned that many traders have great trading ideas, but they lack one thing, they struggle to execute trades in a systematic way for consistent results. Chris helps educate traders with a three-hour video course that can change your trading results for the better.

His mission is to help his clients boost their trading performance while reducing market exposure and portfolio volatility.

He is a regular speaker on HoweStreet.com, and the FinancialSurvivorNetwork radio shows. Chris was also featured on the cover of AmalgaTrader Magazine, and contributes articles to several leading financial hubs like MarketOracle.co.uk

Disclaimer: Nothing in this report should be construed as a solicitation to buy or sell any securities mentioned. Technical Traders Ltd., its owners and the author of this report are not registered broker-dealers or financial advisors. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. Never make an investment based solely on what you read in an online or printed report, including this report, especially if the investment involves a small, thinly-traded company that isn’t well known. Technical Traders Ltd. and the author of this report has been paid by Cardiff Energy Corp. In addition, the author owns shares of Cardiff Energy Corp. and would also benefit from volume and price appreciation of its stock. The information provided here within should not be construed as a financial analysis but rather as an advertisement. The author’s views and opinions regarding the companies featured in reports are his own views and are based on information that he has researched independently and has received, which the author assumes to be reliable. Technical Traders Ltd. and the author of this report do not guarantee the accuracy, completeness, or usefulness of any content of this report, nor its fitness for any particular purpose. Lastly, the author does not guarantee that any of the companies mentioned in the reports will perform as expected, and any comparisons made to other companies may not be valid or come into effect.

Chris Vermeulen Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in