From Danielle Park's Blog.
As the most reckless players are today taking “genius” laps on the back of stock prices which have once more reclaimed the rare distinction of being the most most leveraged and over-valued in history next to 1929 and 2000, it is helpful to consider a little reminder on how speculative markets break: suddenly and all at once. Even the few participants today that feel confident that they have downside protection by using stop loss limits are likely to learn that once prices gap down, stops are often impotent.
This chart of the NASDAQ in its blow off top from October 1999 to March 2000, shows the incredible ramp and then rapid plunge that evaporated 60% of the prior ‘gains’ in 2 weeks (red box).
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