Why does the Stock Market keep crashing?

Question

The stock market won't stop going UP and then DOWN it's like a stupid roller coaster. What's happening?

Answer 1

There has been no crash! The financial sector has suffered recently due to the inappropriate lending practices over the last couple years. (People getting mortgages for houses they can't afford, interest-only loans and such.) As the interest rates have risen these people have begun defaulting on loans and this has causes the companies holding the loans to suffer losses. Some of these have been pushed back to the originators and packagers and now all the financials are afraid to hold or originate mortgages due to the increased scrutiny and apparent risk. Anyway, this behavior has led to a credit squeeze in which there is too little money available for loans.

The market ups and downs have been only moderate when one considers the DOW has hit the 14000 level. %-age movement is quite reasonable. We have merely hit a period of high volatility due to this credit squeeze and some conflicting economic data.

If you can't sleep because of worry over what is going to happen next you are better off moving your assets to bonds, treasuries, money markets, cd's, etc. You can come back into the market in a month or two once the volatility has subsided. You can watch the VIX to see when things calm down.

Answer 2

Its not crashing, actually it is about even for the week... its a volatile market caused buy the fallout of the subprime sector of the mortage market that is causing all this fluctuation. Most investments shored up their profits by investing in these subprime mortages where the return is generally very good. Unfortunately, the originators and underwirters of these loans were giving money to people who were not qualified or didnt understand the terms of their loans. Hence, the default rate on subprime and alt-a loans has doubled since last year. Its part the lender and part the borrowers fault for that... But, like I said, it's because many investments were involved in this. Luckily the Europeans (Mostly the French) bought many of these loans from us and the US didn't take the full hit.

Answer 3

Based on Technical Analysis, few weeks ago the market fell pass a very strong support level. Once a price drops pass a support level and closes below that support level, it is a potential indication of a beginning of a new trend. What usually happens though is that the market would want to test the previous support level to see if it's a real bearish breakout. Just this week, the market moved upwards for the first 3 days. The reason for this movement is so that the market can reach that price level and test that previous support level. What happened this Wednesday was that the market retested the previous support level and failed to close above it. This caused widespread concern over the market. Investors would feel that if it can't go pass that level, then it would continue its fall. On Thursday, the big drop happened.

Answer 4

It won't actually CRASH until the Chinese decide to sell their almost 1 Trillion dollars worth of US Treasuries. Then there's the trade deficit, all the money we own them for the crap we bought at Walmart.

Then there's all the mortgages floating around the bond market still, written to people who can't keep up with the payments because they work at Walmart.

Then you'll see some stuff crash. Canned goods and ammunition time. And gold.

Unless you're in for the long term like you should be. Then, in twenty years, this is all just a blip and will be considered to have been a buying opportunity.

Answer 5

Most buying and selling is done by computers on a technical bases (determined by the programmer). Some programs are selling while others are buying. You can look at various old models on barchart.com's technical opinions to show you how one technical formula says to buy the stock and another says to hold that stock and yet another says sell the stock.

Most of the big money is on vacation (when in May walk away) and will start trickling in around September for the important forth quarter when the majority of retail sales happen and where most retail businesses start showing a profit for the first time that year. Low volume causes wild swings.

Answer 6

How come I don't see that "Stock Market Keep Crashing" that you do? In fact, the stock market has really crashed only twice over its more than 90 years life span and you can literally pin point stocks that rise year on year using a dart! I really don't know how you arrived at the conclusion that the stock market is very fragile.


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Answer 7

Major correction? Yes
Crash? No. There are too many checks and balances in place to allow a crash to happen.

WAKE UP, Ladies and Gentlemen! This is the computer and electronic age. The great majority of stocks are electronically traded.

Almost every day, I hear that garbage about “crash” on subscriber-supported, on-line television programming. The people talking about “a crash” are known as “Nervous Nellies”. Those folks don’t know how to trade and don't have the guts to trade. ALL they THINK they know how to do is b**** & complain about how “terrible things are”.

As far as I'm concerned, that’s ALL toro-pooh-pooh!

In the market, the opportunities are virtually endless. The restrictions are in “Nervous Nellies’" heads.

There are hundreds - if not thousands - of trading strategies. Some are very similar. Others are as different as night and day..
A person can make money:
M1] By having his/her trading own rules for each strategy - AND FOLLOWING THEM;
M2] learning that strategy through paper trading and
M3] adapting his/her rules for that strategy
M4] and using different strategies.
M5] When a trader doesn’t follow his/her own trading rules [and/or when he/she doesn‘t pay attention], that person can quickly lose money, as fast - if not faster - as he/she made that money. He/She can lose LOTS of money!

Before going "live" in the market with real money, paper trade, paper trade, paper trade AND THEN paper trade some more.

A person should learn some things about the market and how it works. Through these sayings, I can tell you these facts:
A] There are no gifts on Wall Street.
B] You are trading people. You are not trading stocks, options, currency, commodities, bonds or any thing else.
C] Trees don't grow to Heaven. Neither do stocks, options, currency, commodities, bonds or any thing else.
D] V.I.C.P.I.E.
Volume Is the Cause; Price Is the Effect.
E] "Bulls [Buyers] make money. Bears [Sellers] make money. Pigs get fat. Hogs [greedy traders] get slaughtered [lose A LOT of their trading money]."

1] People make or earn money when the market or their stocks, options, currency, commodities, bonds, etc. [“position”] go up.

2] People make or earn money when the market or their stocks, options, currency, commodities, bonds, etc. [“position”] go down.

3] People make or earn money when the market or their stocks, options, currency, commodities, bonds, etc. [“position”] go sideways.

4] Its one thing to learn. Its another thing to learn AND DO!

5] So you thought [and think] education is expensive? Just wait until you try ignorance!

6] Ask questions of knowledgeable people.

There are two old sayings:
A] "The only stupid question is the question you don't ask."
B] "So, you thought --- and think --- education is expensive? Just wait until you try ignorance."

Thank you for asking your question. I enjoyed taking the time to answer your question. You did a great job - not only for your information, but for every other person interested in reading my answer.

I wish you well!

VTY,
Ron Berue
Yes, I DID type my last name. I think I'm one of the few folks on this site who does.
I AM EXTREMELY proud of my last name.

I hope you have a wonderful day, weekend and life, ladies and gentlemen. I KNOW I AM!

Answer 8

investors' confidence up = market up; investors' confidence down = down. The worst is panic selling which will trigger a selling mood among investors !. No investors want to hold shares that will devalue in such a fast paced !.

Hopefully this coming monday is not a Black Monday !

Answer 9

As mentioned above.... there was no "crash" this year.

Your question indicates you're new to investing. I would suggest not investing in it until you understand it. Otherwise you'll feel a lot of pain when the rest of us have a "plan" and already know what or what not to do.