It happens all the time. And I’ve written about it again and again, but , to be consistent, lets start 2014 out with the golden rule.
Financial reporters only like markets that rally, Give em a 1 pt rally or a 1000 pt rally and they are happy. Any down day, and they are giving the proverbial duck face and seem to take on the “1000 mile stare” attributed to shell shocked WWI and WWII vets. Honestly.
Today’s a case in point.
Between 12/16 and 12/31;;; the Dow rallied almost 1000 pts!!! Good God!.
Today we were down 105, and the headlines were “Buy the Dip? and OMG worst start ever for markets since 2008. And we all remember 2008.
Today the S&P was down 15 handles. Between 12/16 and 12/31, SPH rallied from 1754.40 up to 1846.20—- 92 handles!! We drop 15 handles in one day and suddenly every one is racing to call the top !
In my opinion, after watching markets for the past 30 years. This is the usual clap-trap we get when 90 percent of the real players are still on vacation. Talk to me on the 6th and the 15th of the Month. By then the real institutional players will be back. I have a feeling a lot of them were still on vacation.
Back to “corrections’ vs. noise.
With the Dow at 16,500, a 10% correction takes us down to 15,000. That’ right down to the October lows. Remember October? The month of the infamous 1929 crash. So much for people who tried to sell based on historical event. they got whacked for 1500 points of reality.
A 20% correction would be a gift to the real bulls. That gets us 3300 pts from here, or down to 13,200. That wipes out 2013 completely, returning us to November 2012 prices!
Until we get a significant move such as a 10% or 20% crack, I’d turn the volume down on the TV set. Stay long your stocks; but use put protection to cover the inevitable crack lower.
What is interesting to me is the amount of bearishness that’s still out there concerning stocks. That suggests we have higher to go. If I knew the future, this would be the last day I wrote an article for this blog.
I am going back to 2013 and looking for anyone who predicted a 30% gain in stocks; a 30% drop in gold; and a 40 % drop in Corn; When I find him I am going to try to write him a check and let him trade for me. I am pretty sure of 2 things however. If anyone had told me that in Jan 2013, I would have laughed at him and 2) if such a person existed; they should have collected about 1BB the easy way, and therefore doesn’t even look at the markets in the same way anymore.
To sum up; In the next few weeks, you’re going to see some volatility; Remember however; 150 pt move is 1%. The percentage move is important; fact that its triple digits. Remember, the TV anchor gets paid to be 1) informative and 2) entertaining. That combination keeps eyes on the screen at the commercial break. The main object of cable new show is to sell ad revenue. Excitement keeps the eyes glued. Don’t miss the forest for the trees.
When the correction comes; no one will get an e-mail or a text message the day before telling you to get flat; much less get flat and then get short!
Look at this chart of the Dow Index and the S&P. You can see how even a 10 or 20% correction still keeps us in a longer term bull trend.
There is a weekly Trend-line for the Dow futures: It comes in down at 14,800? yikes That’s 1750 pts. Also: If you look at the Fall rally which started in the first week of October 2013— That low was 14,681. The high on 12/31??? 16,540 Not quite exactly 2000 pts; But pretty damn close!!
A 38% retracement brings us to 15,800. 1/2 way back gets us to 15,573. 62% gets us to 15,340.
Remember those support levels.
CER
In the S&PH— There is a nice long term -bull trend line going back to November 2012.
That hits currently around 1735. We are currently at 1826. On Dec 16th, we were at 1754. So Such a correction wouldn’t be beyond the imagination.
