Stock Market Bubbles Don't Just Burst Suddenly -- They're Wild Processes

When most people think back on the tech bubble and credit bubble, they probably remember the stock market going straight up, hitting an inflection point, and then plunging relentlessly.

That’s hindsight, which doesn’t really capture the details.

In reality, the stock price moves weren’t that simple and straightforward.

When stock market bubbles come to a head, they make wild swings both up and down. UBS’s Julian Emanuel zoomed into the stock market action during the previous two major market peaks to illustrate this important observation.

For investors, it’s extremely difficult to tell 1) if the market is in a bubble, and 2) if that bubble is bursting while its bursting.

With the recent volatility we’ve been experiencing, one can’t help but wonder if the stock market is in the process of crashing.

“The manic market movement – sharp plunges and even sharper surges – is not unlike the movement seen prior to major market tops in 2007 and 2000,” Emanuel wrote.

It will be a couple of months before we can confirm whether or not we’ve been experiencing the beginnings of a stock market crash.

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