This page has been archived and commenting is disabled.

5 Things To Ponder: Market Correction Over Or Just Starting

Tyler Durden's picture





 

Submitted by Lance Roberts of STA Wealth Management,

Over the last year, investors have been lulled to sleep wrapped in the warmth of complacency as the Federal Reserve stoked the fires of the market with $85 billion a month in liquidity injections.  I have written many times in the past that investors were likely to be rudely awakened by an unexpected event of which was likely not even on the majority of mainstream analysts radars.  That occurred this past week as a revulsion in emerging markets sent the "carry trade" running in reverse.  As I quoted this past week in "Putting The Market Mayhem Into Perspective":

"Hedge funds have been borrowing money in Japan (again) at very low Japanese interest rates, obviously denominated in yen. They then convert those yen to, say, the Brazilian real, Argentine peso, Turkish lira, etc. and buy Brazilian bonds or Turkish bonds using 10:1+ leverage. Accordingly, when such countries jacked up interest rates overnight, their bond markets collapsed. Concurrently, their currencies swooned, causing the 'hot money' investors to not only lose on their leveraged bond positions, but on the currency as well.  If you are leveraged when that happens, the losses add up quickly and those positions need to be sold. So the bonds were sold, and the pesos/lira/real that were freed up from those sales had to be converted back into yen (at currency losses) to pay back the Japanese loans. And as the bonds/currencies crashed, the 'pile on' effect exaggerated the downside dive."

What we will need to ponder this weekend is whether the current correction is simply just a dip within an ongoing uptrend OR have the "bears" finally awakened from their winter hibernation?

1) Is A Bear Market Hanging Over Our Head?  By Robert Lamy via Advisor Perspectives/Dshort.com

"Given the recent performance of the stock market, there is increased uncertainty among individual investors and stock market brokers about the prolongation of the actual bull market into its sixth year. Many of them are asking themselves if the declines over the past thirteen business days is the signal of the near end of the fifth longest bull market since WW II and the beginning of a new long bear market.   A very plausible answer to their interrogations is no. The stock market cycle model predicts that the current bull market will extend through March."

Robert-Lamy-140207-fig-22) Coppock Curve Turns Down by Tom McClellan via PragCap

"A classic technical indicator gave a rare bearish signal for the DJIA with the down move seen in January.  The Coppock Curve has turned down.  More importantly, it has done so after a second big top, which seems to be the important set of dance steps to mark a major market top."

CoppockUnchdFeb2014

3) Retail Panic? via Zero Hedge

I have written many times over the last year that interest rates would rise ONLY as long as complacency ruled investors behavior.  However, with real economic growth remaining extremely weak as deflationary pressures continue to rise, it is only a function of time until investors seek the safety of bonds over risk.   We are now seeing this occur.

"Last week it was the largest equity outflow in over two years. This week, following the Monday drubbing which had the temerity to push the S&P to an "unprecedented" 5% from its all time highs, the timid retail investor said enough, and ran for the hills resulting in the largest equity outflow. Ever.

Zero-hedge-equity-outflows-020714

According to Bank of America, aAfter a 5% loss on the S&P 500 over the last two weeks (through February 5) equity funds reported the largest weekly outflow on record. Outflows from equity funds accelerated to $27.95bn this week from a $12.02bn outflow last week, again led by ETFs." Sure enough, what goes out (here), must come in (somewhere over there), which is why at the same time all fixed income funds reported a record $14.09bn inflow. "Mutual fund investors were clearly seeking the safety of bonds, as three quarters ($11.05bn) of the total net bond fund inflow went into government funds and another $3.48bn into high grade." The great unrotation has officially begun, and unless the downward momentum in stocks is halted (think USD/SPY upward momentum ignition), the party may be coming to an end."

4) 4 Numbers About The Correction by Michael Santoli

"Having entered the year riding an excess of certainty about the steadiness of global economic growth, strength of the corporate sector, attractiveness of stocks over bonds, and scripted predictability of central-bank policies, investors have been greeted with upended expectations on most of these fronts.

 

None of these notions have been decisively refuted. But capital spilling from emerging markets, staticky messages on the pace of global growth and concerns about the duration of developed-world central bank generosity have been just enough to thwart risk-seeking. Recently yields on safe, under-owned U.S. Treasury notes were sent to a multi-week low of 2.6%.

 

Now, as the crowd tries to come to terms with a 5.8% drop in the Standard & Poor’s 500 index over the first 22 trading days of 2014, many seek the “key number” to handicap whether this is a mere frightful pullback that resets investor expectations or something worse.

 

This is always tricky, because the onset of a “correction” of any depth is hard to distinguish from the opening phases of a more damaging bear market."

5) US Stocks May Unravel Quickly via Bloomberg

Tom DeMark, the chief executive officer of DeMark Analytics LLC, said in an interview on CNBC that U.S. stocks have reached an “inflection point” that resembles the period prior to the 1929 stock-market crash.

 

Chart Of The Day - Putting Stock Market Correction Into Perspective

S&P500-Corrections

With our intermediate term sell signal now issued, it could likely mean that next week will prove to be interesting.

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 02/07/2014 - 18:41 | Link to Comment Ray1968
Ray1968's picture

correction needs to continue so more bankers can commit suicide...until dead bankers = the SP500

Fri, 02/07/2014 - 18:40 | Link to Comment Stanley Kubrick
Stanley Kubrick's picture

Banker Suicide (a.k.a. the Ultimate Correction)

More please.

Fri, 02/07/2014 - 18:42 | Link to Comment TheFourthStooge-ing
TheFourthStooge-ing's picture

...until the Hamptons look like Detroit.

Fri, 02/07/2014 - 18:56 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Boris is propose new ETF base on SIX (Suicide Index). Thing get really bad and citizenry is take to street, maybe fund base on MIX.

Fri, 02/07/2014 - 18:59 | Link to Comment Say What Again
Fri, 02/07/2014 - 19:09 | Link to Comment CIABS
CIABS's picture

"...it could likely mean that next week will prove to be interesting."

 

Courageous.

Fri, 02/07/2014 - 21:30 | Link to Comment hobopants
hobopants's picture

Not when you use a nail gun I bet.

Fri, 02/07/2014 - 18:58 | Link to Comment Say What Again
Say What Again's picture

Tom DeMark was talking on the 5th of Jan about what prints in the averages would cause him to see a major sell-off.  The market rallied of the lows on the 5th.  I guess we're back to bull BTFD mode. 

Fri, 02/07/2014 - 19:02 | Link to Comment sixsigma cygnus...
sixsigma cygnusatratus's picture

In our Twilight Zone economy, anything is possible.

Fri, 02/07/2014 - 18:57 | Link to Comment Dick Buttkiss
Fri, 02/07/2014 - 18:57 | Link to Comment Sudden Debt
Sudden Debt's picture

:)

Fri, 02/07/2014 - 18:38 | Link to Comment q99x2
q99x2's picture

BTFD

Bernanke said stocks aren't over-valued. Dude the indexes are printouts of graphs by FED computers. The beard knows what his software is capable of.

Fri, 02/07/2014 - 18:38 | Link to Comment devo
devo's picture

What I'd like to know is why anyone would want to buy stocks here as they're at an all time high and earnings are collapsing?

Fri, 02/07/2014 - 18:40 | Link to Comment natronic
natronic's picture

Because i'm buying GOLD mining stock so while everyone else tanks i'm laughing.

Fri, 02/07/2014 - 18:48 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Well,  any above average pathologically optimistic American knows that they could go higher.   You can't win unless you play the game!

Fri, 02/07/2014 - 18:49 | Link to Comment FredFlintstone
FredFlintstone's picture

Do you need to be reminded? We are ALL above average!

Fri, 02/07/2014 - 19:06 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Because earnings are not collapsing.

Revenue is.  Profits are.  But earnings are not.

 

(Share buybacks)

Fri, 02/07/2014 - 20:20 | Link to Comment devo
devo's picture

Correct, my bad.

How long can share buy backs go on? I think that's the key question to all this.

Fri, 02/07/2014 - 18:37 | Link to Comment natronic
natronic's picture

Low unemployment and the market goes up.  I predict we will create 10,000 new jobs next month and the market will soar to 17,000...................god these guys are in for a huge awakening!!!!  The REAL drop hasn't happened yet.  About 6 months to a year away.

 

Fri, 02/07/2014 - 18:49 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Re:  About 6 months to a year away.

Of course, that's what everybody has been saying for the last 5 years.

Nothing "drops" until somebody doesn't get paid.

Fri, 02/07/2014 - 18:52 | Link to Comment The_Ungrateful_Yid
The_Ungrateful_Yid's picture

What real drop are you waiting for?

Fri, 02/07/2014 - 18:46 | Link to Comment Frank -THE COIN -
Frank -THE COIN -'s picture

This Bounce up is perfectly normal when a market is going down in a StairStep fashion. Mid to late next week its gonna Roll Over. This will be the first step of a Downward StairStep pattern. And we will be forming the right shoulder of a Head and Shoulder Pattern. Watch out below.

Fri, 02/07/2014 - 18:42 | Link to Comment TheFourthStooge-ing
TheFourthStooge-ing's picture

.

have the "bears" finally awakened from their winter hibernation?

Does the deer look nervous?

Fri, 02/07/2014 - 18:46 | Link to Comment The_Ungrateful_Yid
The_Ungrateful_Yid's picture

Bears are impotent, this is a bull market for now.

Fri, 02/07/2014 - 18:52 | Link to Comment fijisailor
fijisailor's picture

6.  Amount of undeclared/shadow QE injected into market.  

Fri, 02/07/2014 - 18:52 | Link to Comment TheRideNeverEnds
TheRideNeverEnds's picture

The bottom is in, BTFD now because in a week you will have to BTFATH

Fri, 02/07/2014 - 19:14 | Link to Comment knowshitsurelock
knowshitsurelock's picture

Wow, sure glad I re-mortgaged the house, maxed out my credit cards, and sold my IRA to go "all in" on triple X-ETF calls on margin!

I'm getting filthy rich today!

Fri, 02/07/2014 - 19:10 | Link to Comment Spastica Rex
Spastica Rex's picture
Market Correction Over Or Just Starting

Based on the last 5 years?

I pick #1.

Fri, 02/07/2014 - 19:13 | Link to Comment syntaxterror
syntaxterror's picture

0.00% interest rates will carry this market for years to come it seems. What's this, year 7 of ZIRP?

Fri, 02/07/2014 - 19:21 | Link to Comment Hindenburg...Oh Man
Hindenburg...Oh Man's picture

investing is easy--just wait for ZH to post regarding a market drop, and then buy. That, or just wait for the Europe close. 

Fri, 02/07/2014 - 19:36 | Link to Comment A82EBA
A82EBA's picture

log chart S&P, late 60s early 70s looks like last 12 yrs

Fri, 02/07/2014 - 19:54 | Link to Comment Wave Maker
Wave Maker's picture

The dollars from stock sold have been moving into bonds and precious metals, leaving less dollars to go back into stocks; the bounce will therefore not be as high as the previous high.

Fri, 02/07/2014 - 20:58 | Link to Comment syntaxterror
syntaxterror's picture

bonds? bonds???

Fri, 02/07/2014 - 20:13 | Link to Comment The Heart
The Heart's picture

Here are a couple of vids that could be pointing towards things that are just getting started.

Some of it is already dated. Some of it is on target. We all hope none of it happens at all.

http://intellihub.com/a-new-911-from-hell-what-would-you-do-if-the-u-s-p...

http://www.youtube.com/watch?v=Ijw8lHpPmAI

Sadness is realizing that America is fast going the way nazi germany did, and things could get better, but will they?

What a vision to hold where the Rothschild bankster obligobbly all put their monies into stopping fukushima, ending all wars world-wide, ending all the money spent on the nazification of America, fully promoted higher spirituality and peace, and just put all that other green energy into productive profiting self-sustainable organic food farm communities and factories in America where products around the world suddenly said something that has rarely been seen in years. Made in America.

 

 

 

 

Fri, 02/07/2014 - 20:39 | Link to Comment kenezen
kenezen's picture

S&P Lots of sideways high volatility movement up & down then after tearing balls off going down dramatically. 1600 then 1200.

Fri, 02/07/2014 - 21:29 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

http://flic.kr/p/enJ7Cs

No pondering here: I had this figured out back in May.

Fri, 02/07/2014 - 21:37 | Link to Comment Crawdaddy
Crawdaddy's picture

Posted this before but here ya go fwiw...

http://www.zerohedge.com/news/2014-01-31/futures-tumble-deflation-monste...

In 2000, Jude Wanniski observed people needed to sell stock in order to pay the taxes from the big run ups in 99.

 

"“The NASDAQ sell-off has me thinking of a connection to April 15 and
the fact that there is no withholding on capital gains,” Wanniski warned
last month. “There was a sell-off last year too, remember, with a bounce
back after April 15 and a flat market for some months thereafter. In
other words, people who took capgains before December 31 now find they
owe Uncle Sam and must sell equities for that purpose.”"

http://www.wnd.com/2000/04/4477/

 

Fri, 02/07/2014 - 21:46 | Link to Comment dragoneyes74
dragoneyes74's picture

While I was expecting an equities short-covering rally at some point, this has come way earlier than I thought.  I guess it's not all that surprising when you consider how strong the trend has been.  This is why in a strong trend there tends to always be another chance to get out.  The big money long-term players stop selling because they know all they have to do is support a technical area and push it higher to scare the shorts into a covering frenzy, thereby providing them with a higher price to unload at, which is the big question everyone is wondering: will those big money long-term players be quietly unloading as the dip buyers push us as high as they can before running out of buying capacity, or will the long-term players be buying the dips as well and supporting another leg higher in equities?  It comes down to Yellen, the debt ceiling, and the Yen.  

Everyone knows the debt ceiling game.  Be first to sell, then first to buy when Boehner concedes.  While he didn't formally concede last week, it alreadys sounds like he's ready to, which very well could have been another reason we bottomed and rallied so hard.  I doubt either party wants any blame this year, so it seems like a deal will get done but you can never count out market turmoil from our lovely politicians.  Once this is formally out of the way, it at least clears one potential hurdle.  

I don't watch CNBC, except for 5 minutes before NFP and the Fed press conferences, so I kinda forgot that not everyone on the long side is playing the same "hot potato" game.  There's a lot of people who actually think the stock market is reflecting a real recovery and not just the free money from the Fed.  Good luck with that.  So the wild card this week is whether Yellen will stress how open she is to halting the taper next month, or how committed she is to staying the course.  The main reason I thought we might get the taper in Dec was because the Fed wouldn't want to send a hawkish tone in Yellen's first couple gigs.  We'll see how true that is soon.  But how many stock market crashes in history have happened in the spring anyway?  That's another reason why my map included a spring rally.  I just thought we'd go lower first.  It's not over yet, but Yellen could be key as to whether we finish the correction down to the 200-day or hold and grind higher from here.  

Obviously, equities are tracking the USD/JPY, practically tick for tick.  So you have to be tuned into the BOJ madness as well.  If you pull up your USD/JPY chart, you will see if you draw a horizontal line across the Sept high of 100.67 it is the exact bottoming point this past Wed, which "coincidentally" was the bottom in the ES as well.  That was one of the reasons I picked out that area as a possible reversal point.  If I had known we would rally this hard, I would have went long.  But I believed we'd only make it to 1770 and rollover to test the 200-days.   If you draw an uptrendline in USD/JPY from last Feb low at 90.88, it has several touches and currently runs thru approx 100, which is round number support and very close to the 200-day.  It seems like that would be the area the big money would support and act like a magnet.  Both the USD/JPY and the ES are under the 50-day/20-day convergence.  If they have the power to get thru, which will likely depend on Yellen making everyone happy, it's possible the USD/JPY grinds up to its downtrend line from the recent highs, which runs thru 103.70 at the moment (if you draw it thru the body tops).  So this is about as uncertain a market condition as there has been in a long time.  So much is shifting.  The way I interpret it, if the ES grinds sideways between 1790 and 1810 for awhile, that will form the perfect right shoulder.  So you have to watch the action there closely.  A strong close above 1810 opens the door to test the highs as long as the USD/JPY doesn't rollover at that downtrend line in the 103 handle.  It would be far better trading if Yellen comes off committed to tapering and we test those 200-days, then, not only is the short side an easy play, but it's buyable for a spring rally.  However, if Yellen talks about slowing or even the possibility of reversing the taper, it's much harder trading because you have to close your eyes and buy a backtest of the 50-day once it clears and hope the big money isn't selling to you.  

Which is why I'm more interested in gold and silver, and now the Euro.  I mentioned before that the EUR/USD baffled me the most in the second half of last year.  That hasn't changed.  I was looking to short the Euro, but Draghi pushed off the loosening he will eventual succumb to, so I started a small long position in the Euro that I will add to if it continues to go my way.  I am afraid of Yellen, but if she sounds dovish, the dollar should rollover and propel the Euro deep into the 1.40s.  More importantly, gold and silver are still holding in there and acting well.  Every rally in gold into the 1270 area has been swatted down by some very large sellers but it's still making higher lows.  I'm hoping you will see this week why I'm so obsessed with this breakout.  Maybe Yellen day will be it.  At this point I don't care which way it goes.  I'd MUCH rather it breakout higher, but this has been basing out for so long now it will be a big move whatever direction it goes.  It just makes more sense to the upside.  I guess it makes sense that the EUR/USD is interpreting the dollar as weaker due to rates staying low thru 2016 and Draghi sticking firm, regardless of the tapering.  I hope that's the case for many months now.  

Also interesting is oil, which had a bonified breakout today.  While there's no reason this can't go to $110 or even make a new high over $114, it already has pretty extreme positioning, so you just have to be careful.  But if the dollar rolls over and eventually loses $79 (largely dependent on Yellen), you could see some oil shorts bailing out and new buyers coming in.  I'm considering it, but I'd rather buy a pullback and/or see what Yellen says.  You can probably view the pattern since Oct as an inverse head and shoulders with the neckline in the 101 handle.  Potential stopping point or exposion point.  

I've been studying selling 2SD puts on the SPX since mid-Jan because I figured that was the worst possible time to initiate that position and I wanted to see what would happen on paper.  This is my future in trading for sure, I just don't quite have the consistent time to do it yet and I wanted to study a VIX explosion first.  I'm very pleased by what I see.  And yes I know people blow up when the VIX doesn't stop.  But if you hedge yourself properly when you need to, know how to read the market psychology, and don't have a "can't be wrong" attitude, this is the far superior way to trade.  You can cut out all this whipsaw nonsense and have huge room for error.  I again give credit to Tasty Trade, and John Carter for turning me onto selling premium.  That's a good job outta you.  

Fri, 02/07/2014 - 22:06 | Link to Comment Crawdaddy
Crawdaddy's picture

You just now wrote that in response to this post? I'm betting no.

Fri, 02/07/2014 - 21:51 | Link to Comment orangegeek
orangegeek's picture

truly remarkable how much the NASDAQ100 moved up in two days

 

http://bullandbearmash.com/chart/nasdaq100-weekly-tanks-early-recovers-c...

 

weekly looks like more 14 year highs - pathetic

Fri, 02/07/2014 - 22:31 | Link to Comment BullyBearish
BullyBearish's picture

It's really dependent on if they are REALLY tapering...or not!  Today's action looked like the secret handshake was made and tapering was "off-the-table"

Sat, 02/08/2014 - 08:05 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Is the Fed still printing?

And there is your answer.

Sat, 02/08/2014 - 13:11 | Link to Comment AdvancingTime
AdvancingTime's picture

In what most of us view as a fast moving world many people have come to think if it doesn't happen today or in the next few weeks it is simply not going to happen at all. What I'm seeing develop is an "almost surreal" feeling of indifference towards reality. Companies have already ushered saving from interest paid on debt into the earning column and a major reason inflation remains low is they are sitting on a hoard of cash this has lowered the velocity of money. We must remember the artificially low FED controlled interest rates are a massive one-off or onetime tailwind that is mainly behind us.

Have we been lulled into complacency by the extraordinary actions taken by central banks and governments over the last six years? This is a key question we must face. Have these actions really worked or merely masked over major flaws and problems?  And just for fun, consider that by not demanding the right kind of growth and by throwing money at problems we have only delayed and added to festering issues that face us in the future. More on growing complacent to risk in the post below,

http://brucewilds.blogspot.com/2014/01/have-we-been-lulled-into-complace...

 

Do NOT follow this link or you will be banned from the site!