Monday was ugly.
After stocks saw their worst week in four years, markets started Monday deep in the red, with the Dow plummeting 1,089 points before recovering some of its losses. All of the major US indexes fell over 3% by the end of the day.
Tuesday feels like sunshine after a storm. Markets opened sharply higher, with the Dow up 390 points, the S&P 500 up nearly 2%, and the tech-heavy Nasdaq up over 3%.
While we may not be doomed to crash in the near-term, it would be a mistake to get complacent.
Generally, when people think about the tech and credit bubbles in the stock market, they tend to visualize a single crazy stock plunge that just keeps going and going in one direction.
When stock market bubbles come to a head, however, they tend make wild swings. In other words, they don't just suddenly burst — it's more of a wild up-and-down process.
In a January note to clients, UBS strategist Julian Emanuel zoomed into the stock market action during the previous two major market peaks to illustrate this important observation:
UBS
UBS
In a sentence, even though the stocks are up on Tuesday, it does not necessarily mean everyone's in the clear.
After all, it's extremely difficult for investors to tell, first of all, whether the market is in the bubble, and second, whether that bubble is bursting.
So given the recent volatility, one can't help but wonder whether the stock market is crashing. Unfortunately, it will be a while before we can confirm whether that is actually happening.
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