I read an interesting piece this morning that suggested we are witnessing the first true market correction in 10 years. The author’s point is that all the major sell-offs we have seen in that last ten years began on a piece of news, a natural disaster, a political act of idiocy, a rumor, or something happening in “a country you never heard of.”
- This time around, there is no crisis. There is no war, no news, no geopolitical tensions, no earthquake, no tsunami, no debacle in Washington, no political deadline, nor even a single rumor of a sovereign debt default.
He suggests that this time the market is selling off simply because it is correcting the excesses of the past year in the “momentum” stocks. Then again, as most financial writers tend to do, he hedges his bet by suggesting that maybe it is not a true sell off; rather it is just the computers latching onto a trend.
- There is a chance that the trend-following algos are simply locked onto a “trade” at the present time. IF (note the use of capital letters) this is the case, then we shouldn’t be surprised to see the market turn on a dime and move higher in a straight line – ala the move seen from February 4 through March 6.
Even though the author does an analytical ballet, moving about and not seeming to alight anywhere …
- Unless the past week was simply computers doing what the computers tend to do to the market sometimes, we’re looking at a decline that appears to be driven by something we haven’t seen for a very long time: traders/investors heading to the exits.
… he does firmly state a reality to which we should all pay attention.
- Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend.
We should also pay attention to another reality – over the last five years, buyers have consistently returned to the market when the bloodletting is over. Given the current economic conditions are no better or worse than the general state of affairs over the last five years, it is highly likely the bulls will make a comeback, if not today or tomorrow, then soon enough, especially if the consumer remains in the game. Given the positive March retail numbers that came out today, in conjunction with the upwardly revised numbers from February, it appears this is the case. Oh! Don’t forget. Europe, the largest economy on the planet, is coming back as well.
- Remember, stocks remain in a bull market until proven otherwise. And, if investors have learned anything over the past 10 years, it is to BTFD. Thus, unless/until things turn truly ugly for a protracted period of time, one may want to take a breath here and give the bulls a chance over the next week or two.
Yes, we all might want to chill until the latest correction sees its way through to the end. No matter the cause of the correction, the fact remains the market is doing what the market does – periodically rebalances. Since this is so, then the above advice is good advice, especially if you have been tracking the market for the last five years. Oh and BTW, I believe BTFD means, “buy the dip.” The “F” is in there to emphasize the point, or so I believe. No matter, emphatic or not, the advice is solid. Go with it.
Trade in the day; Invest in your life …
