I thought this was really interesting to listen to in case you have not already. It is the audio of an Sp500 trader quoting the action taking place in the futures pit in Chicago on May 6, 2010. Quite entertaining to listen to if you are into this sort of thing.
On that day on May 6, 2010 I remember it quite clearly. I was absolutely shocked at how fast the tape started moving after the DJIA transitioned from 300 points down to 400, 500 and 600 points down. It had a huge affect on my emotions and I felt like a bomb blew up somewhere nearby.
The way this guy describes the action tick by tick is quite revealing.
That day seems now one that is a total distant memory, although it actually happened not so long ago. It almost seems as if we forgot about it as much as the 87 drop, but again we are talking May 6, 2010, not 1987.
These huge quick drops for the most part seem to only occur from areas in the market that get extreme overbought or record overbought. Clearly the April 2010 topping area was extreme overbought.
But now we find ourselves in similar overbought but maybe not quite to the level of April 2010. So I am realizing, perhaps stating the obvious that big huge spike type drops in the market are much more likely to occur right after a big overbought peak instead of an already slowly declining persistent trend.