So is the correction over already?
So that’s all ya got?
If the much feared correction is over, then investors are still waiting for the kind of 10% correction that normally punctuates a rally.
From the January 19 peak close at 1150.23 to what is so far the bottom at 1056.74 at the close on February 8, the Standard & Poor’s 500 Stock Index was down just 8.13%.
And as of 1 p.m. ET on February 17 the index is up 4% from the February 8 close.
Looking at the action at the end of January and into early February I thought that there was a good chance that the rally would finally suffer a 10% correction. And I thought that, if that happened, it would be a good thing. Rallies need to have corrections to wring out excessive enthusiasm and to bring in new money from the sidelines as investors go bargain hunting. My January 28 post http://jubakpicks.com/2010/01/28/odds-that-this-is-a-10-correction-and-not-just-5-rise-as-tech-stocks-sink/ will give you more details on why I thought we were headed for a 10% correction this time and why that might be a good thing.
Now there’s some chance that the rallies of the last few days are related to an absence of news from China because of the week-long New Year holiday that began on February 15.
With China’s financial markets closed, there’s no worrying news on a potential slowdown in China’s economic growth. So I’m not willing to call this correction over until China’s financial markets have been back in business for a week or so. If the return of news flow from China hasn’t sent prices back to where they were on February 8, then I think this correction is probably over.
And it will have ended short of that 10% pain level for the same reason that all the other corrections in the bull market that began in March 2009 have petered out after just a 4% to 5% drop: There’s still an awful lot of money on the sidelines that missed out on the 70% rally off the March bottom and is just waiting for a dip to buy in. The more times that dip is just 5% instead of 10%, the more investors will say “Buy” after a 5% drop, figuring that’s all they’re going to get in the way of an opportunity.
That sets a limit to how bad a correction will be.
On the other hand, if you can remember back just a few days to how nervous everybody was when the S&P 500 was down just 8%, you’ll recognize just how jittery investors are.
I’d call bullish sentiment a mile wide but an inch deep.
If the market continues to go up when China’s markets reopen, investors should start asking themselves a new question: Is this a resumption of the March rally or just a bounce?
I’ve never said 2010 was going to be easy. (See my post “How to worry –and when—in 2010” http://jubakpicks.com/2010/02/16/how-to-worry-and-when-in-2010/ )
But the emerging market dropped more…..
The fact that financials are doing well off this bottom may be a good sign the correction is over.
I do not remember where I read a comparison + forecast between the 1974 bear and the current one. In a nutshell the graph showed the bottom in mid February 2010 and a series of higher highs until December 2010 and then 10 months of real pain. Mind you it is only a forecast. In reality our investor destiny lies on the leadership of our politicians. One mistake can cost us a double dip recession.
Jim,
The question du jour: Is this REALLY a rally, or just a one-day fling?
Personally, I have the sneaky feeling the market will be giving us the “let’s be friends” speech soon…
Ed,
It could only be a short squeeze.
I going to cozumel snorkeling….the corrections over…
The banks are going up, but they are in a rally on low volume.
I am no expert, but the low volume sort of worries me.
I see the DIA up today, with the dollar, and commodities down. Is that the carry trade in yen holding up the market, while the strong dollar crashes the commodities ?
The volume still remains very low for this rally too. Could just be a short squeeze. This week is also the option expiration week.
S&P’s Stoval opines that correction is over
http://www.cnbc.com/id/35438989
Remember that China is out of the market this week, possibly contributing to low volumes.
If, if, if?? I’ll say what I’ve said for 6 months; I don’t think this is a market you can hang a historical hat upon. This is new territory for markets (bubbles & politics included), one I’ve not seen quite like this in memory. Figure corrections and rallies out in hindsight.
The China angle makes sense…we’ll see. I think we’ll know by “so goes the ‘global recovery’, so goes the market”. To illustrate the difficulty in predicting how the market will respond, remember when they sold the news? earnings season didn’t matter; jobs did. Now, earnings and guidance matter, home starts matter, etc. etc. Who knows, Jim might be right…or wrong. Looking backwards is the only reliable vision for what happened and why.
@mopama – wonder if you are referring to this:
here you go: http://www.businessinsider.com/chart-of-the-day-sp-500-now-vs-1970s-2010-2?utm_source=Triggermail&utm_medium=email&utm_campaign=CS_COTD_021610
Srian,
When someone from S&P speaks it is best to neglect – in fact, they are wrong so often that it might just be a prefect contrarian signal. Look at Stoval’s record – just full of generalities: IBM will do well! Gee thanks.
FYI, it looks like emerging markets went through a 13.9% decline to the low of Feb 8th, using VWO as a proxy. For what it’s worth…
NB,
No it wasn’t that one and it was a while ago. Anyway, the results are similar. I remember reading also that market ‘normalization’ (for what that means) would occur only in 2014.
mopama,
I wouldn’t make a market prediction for 4 years from now. Although I think we can safely say that the market won’t be bullish this year. We’ll get a few tiny bull runs, but that’s it.
Ed,
Touche’! One of my University Professor of mine usually told me: ‘We need a plan! But remember, a plan is done to be redone!’. Let’s not forget that Global Companies have plan(s) and model(s) that run for more than 25 years in the future. Why shouldn’t have a long term plan a long term investor than. Everything should be taken with a grain of salt or two, though!
We may actually need to be more bearish over Europe for the coming year:
http://www.economicpolicyjournal.com/2010/02/beware-july.html
The PIGS have sovereign debt to be refinanced throughout this year. Before you say “no biggie”, consider that the U.S. and most developed nations will be deficit spending all year long (increasing the “supply”), and with China and Japan reducing their treasury holdings (decreasing the “demand”), which will increase the cost of refinancing sovereign debt (remember supply and demand works for financing sovereign debt too).
Folks, this European debt situation may be FAR worse than anyone realizes.
Here’s how the dominos fall after Europe:
http://www.bloomberg.com/apps/news?pid=20601083&sid=aA6w5CFG2MG4
Next time you hear a so-called economic expert declare we need more U.S. government spending to stimulate the economy, you can chuckle at his stupidity, realizing that the exact opposite is going to happen.