Have you ever watched the win probability chart for a football/basketball game as you were watching it live? ESPN has it on their "Gamecast" feature and it can be quite interesting to see the odds adjust as the game evolves.

Perhaps the most famous example was the Patriots-Falcons Super Bowl from a few years ago. The Falcons were ahead 28-3 late in the third quarter and the oddsmakers had the Falcons at a 98%-99% win probability. Then the Patriots proceeded to create the greatest comeback win in Super Bowl history. This is what the graph of the real-time win probabilities looked like:

If you had been able to make a live in-game wager on the Patriots when they were losing 28-3 you could have probably had a 50x return on your wager amount.

I often see the stock market as a probability chart like the one above. There are different events taking place and various market participants (millions of them) are buying/selling all the time. The market is constantly in flux and the future is ALWAYS uncertain. The probabilities are always changing, and thus so are prices.

When the probability of an event(s) occurring is the highest and market participants are feeling the most confident of positive outcomes, prices are also the highest. And when outcomes are the most uncertain, and market participants are feeling the least confident, prices are also usually the lowest. And so it is, and so it always will be.

The best investment opportunities occur when the crowd is the most fearful and feeling the most uncertain of any positive outcomes materializing. And the best times to sell are when the crowd is the most greedy and feeling the most confident that the recent advance in prices will continue forever.

This morning, market participants are more fearful than they have been in months as a strong waft of uncertainty permeates the air. In turn, prices are the lowest they've been in months.

The round number support at 3300 in the S&P 500 was breached yesterday, and a more tumultuous scenario appears to be unfolding ahead of next Tuesday's US Presidential Election:

Last week, I read an excellent piece of market research (I forget which bank it came from) and the author made the point that he felt the Fed would only step in and support markets once the S&P had fallen to the 3100 area. I wish I had paid a bit more attention to this note.

While that doesn't mean 3100 has to be reached, it's probably not far off the mark in terms of the Fed's willingness to do more to support markets at this point. A dozen Fed speakers recently spent weeks reiterating that it was important for Washington to pass a stimulus bill to provide additional fiscal support to the economy. As we know, this has not materialized due to political bickering and posturing ahead of the election.

Unfortunately (or fortunately, depending upon ones perspective), markets are caught in the 'gap' and next Tuesday couldn't come fast enough. 

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