Monday: Market crash, or up 6.5%?

After Wall Street's worst week ever (by some measures), people wondered: is this the lead-up to another Black Monday (a la 1987)?

I don't think so. In fact I think the proper analogue is the week after the September 11 attacks. That week the market was down each day. Friday was a meandering day that ended down a bit. The week as a whole was -11%, compared to this week's -18%. The next Monday was up 4%, which is why I see +6.5% for this Monday.

The week before the 1987 crash was up on Tuesday, then down Wednesday, Thursday, and Friday. Friday was down 5% (the first ever day that the Dow fell 100 points, which made it big news that everyone—market watcher or not—heard over the weekend). This isn't the same type of week. This latest week was a lot like the post-September 11 week when people wondered if the world was going to be the same.

Turns out the world didn't change all that much except at airport security. Just like, our lives will be pretty similar to how they were last month except on Wall Street. Last week was an overreaction, so Monday should be a bottled up bullish day, the first up day in about 8 sessions. That's a long time.

Now when I say the downside slide was an overreaction, I'm using trader speak. In other words, for those who are perennially bullish, it was an overreaction. Perma-bulls even got freaked out, and this week they'll come back to their senses and be bullish again. When they buy instead of sell Monday, the market will rise.

Given the recession that we face and how little it has been discussed, the correction isn't even nearly over in the longer run in my opinion. But even I was surprised at how fast we almost got to the neckline of the double top. And the correction is well over 40% now, and like I said, very ripe for an upward reaction. At this point it's hard to think of news that could shock people, and the IMF and dozens of countries are getting plans together to deal with the crises this weekend, so the push looks to be in the up direction. At least for one day. :)

But probably Tuesday will follow through, and as I wrote before, the next weeks or months will drift in the positive direction. Any small investors/IRA holders who sold due to Jim Cramer have acted by now.

Friday's market action was pretty wild, both in range and the fact that it basically crashed and recovered twice. That's a lot of selling, done twice in the same day, and lots of buying too. It may seems odd to determine that both are positive but in this case I think so. We're seeing the lows that buyers (or computer trading programs) are willing to buy into, as well as washing out the final sellers in this phase. And most pros and market watchers will be certain that we've reached the lows since the drop is comparable to the 1973-74 bear market and the 2000-2002 bear market.

So enjoy Monday. And if Monday goes bad, count on Tuesday. If both are bad, I'm not sure what to tell you.