As most investors are aware, investor sentiment has been at levels of bullishness and confidence usually seen near market tops, and the major market indexes are as over-extended above their long-term 200-day moving averages as they usually get without at least a 10% to 12% correction down to retest the support at those moving averages.
If this anticipated correction comes down by 50% of the move that has happened, then I will start to consider additional purchases.
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However, in the summer of 1998 the stock market was finally experiencing a correction, down more than 17%, the exuberance being cooled off.
The DJ Transportation Avg, which frequently leads the rest of the market, has possibly already rolled over into a correction, down 4% over the last four weeks.
The confusion continues, with the Fed desperately trying to push up prices and the great correction pushing them down.
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Yet the problem with standing still if you have reason to believe a meaningful correction is coming down the track at you, is that a 30% decline requires a 42% gain just to get back to even, while a 50% decline requires a 100% gain to get back to even.
The 10% correction is a big down payment on the markets overvaluation.
In that certain sense, the best driver of future growth would be a true housing correction that would bring down home prices such that home buyers would have extra savings to commit to growth initiatives in other parts of the economy.
Brazil is also seeing a big correction in its growth forecast, now down 0.6 basis points to just 2.5 percent in 2012 and growing to 4.6 percent in 2013.
Technically, volume in the rally is very light, less than 0.8 billion shares traded daily on the NYSE, compared to as many as 1.6 billion on the down-days during the correction.
Among my reasons, I noted that volume in the rally was very light compared to the volume on the down-days during the correction, which indicated insiders and large institutional investors who were selling during the correction, were not believers in the sustainability of the rally and were not participating, more likely waiting to begin selling again when the rally ends.
Is the astute investor hunkering down, expecting a southbound equity correction in the coming months due to the ongoing budgetary battle in Washington?
Even the largest and strongest stock market of Europe, Germany, which had been making new highs right along with the Dow, has been in a correction over the last few weeks, now down 7%, with short-term support levels broken and looking like more downside ahead.
This area must hold, otherwise this new down move could turn into another extended correction.
But now he says that there has been some correction in shipments, estimates for Xilinx have come down since the original downgrade, and carrier cap ex trends have been stronger than expected.
Leading stocks, especially in tech, had been breaking down the hardest during this multi-week correction, which is a sign of diminished risk appetite that traders do not like to see.
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After being down 16% in its April to July correction, the Dow has rallied back smartly and is now up 11% for the year, while the Nasdaq is now up 17% for the year.
The very simple and short explanation is that this recession dropped further down than past recessions, and consequently, the correction will take longer.
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From all that we can tell, the great correction has not been turned around it has merely been slowed down, delayed, and magnified by public sector borrowing, and money-printing, on a huge scale.
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In early May the same type of uptrend broke down, leading to a 13%-15% correction.
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Dragging the tech ETF lower was aggressive selling in Corning (GLW), which took the stock down by more than 10% as part of a multi-day correction.
As such, the real test of the strength and longevity of this recent rally will not come from the first short-term correction of a few percentage points, for buyers will show up on these first forays down.
In Corning's wholly owned display business and Samsung Corning Precision, total glass volume is expected to be consistent to down low-single digit percentage sequentially, depending on the level of normal seasonal inventory correction expected from panel manufacturers.
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But whereas neither the April-July correction in the U.S., nor the decline in August, carried the U.S. market down to the bottom of its similar formation, the Japanese market followed the historical pattern of the formation, declining in a bear market until it was down 26%, and at the potential support at the bottom of the formation.
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