Market Correction Underway
By Barry Ritholtz - January 21st, 2010, 11:53AM
Since the lows in March 2009, the market has yet to correct 10%. In June, there was a 9% pullback, followed by a 6.5% pullback in September.
So far, we have a volatile few days, but any 5 day chart is mostly noise:
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Day to Day Action: Its Mostly Noise
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As the 12 month chart shows, the long term trend remains in effect. Watch 1114 on the SPX. Major support at 1078 — that is the level most traders will be watching.
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Trend Remains in Place
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One last thing that few people admit: These trend lines are very subjectively drawn, and you can easily alter the outcome by selectively placing lines at bottoms or tops.
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January 21st, 2010 at 12:03 pm
Larry Kudlow is tied up in knots. What a friggen moron that man is.
January 21st, 2010 at 12:06 pm
surely not a trend but an ugly looking 2 days from the action we’re seeing. this thing could be heading below 10k real soon.
January 21st, 2010 at 12:06 pm
Barry-
the Fed tries and tries but deflation will not be denied
January 21st, 2010 at 12:07 pm
Yep. Good post. Seldom heard. Now they really wont have you back on TV more.
One thing I tell my HF colleagues… 25%/yr … 250 trading days… 10 bps per day, the rest is noise.
January 21st, 2010 at 12:12 pm
Great annotations on the first chart.
January 21st, 2010 at 12:13 pm
Nice post at ZH.
http://www.zerohedge.com/article/scandal-albert-edwards-alleges-central-banks-were-complicit-robbing-middle-classes
January 21st, 2010 at 12:34 pm
your chart clearly demonstrates the subjective nature of the ‘trend’ lines: eg why not draw the line from the lowest point at the beginning. because it doesn’t work that way
January 21st, 2010 at 12:39 pm
As I mentioned on a different post, I put a small amount of money in an S&P500 fund last week, so the top is most definitely in… Sorry I forgot to warn everybody.
January 21st, 2010 at 12:43 pm
Looks like, there is going to be some backlash on Walstreet from O team.
January 21st, 2010 at 12:44 pm
@tude: The real “top” won’t be in until Lloyd and co suck all of us little people in. We’re probably not there yet. Need to suck in some dip buyers first.
January 21st, 2010 at 12:46 pm
Barry and Other readers,
Any levels to watch our Gold and Silver to enter.
January 21st, 2010 at 12:50 pm
So the election of Brown put in the top. Actually a lot more appropriate than you would think ;-)
January 21st, 2010 at 12:52 pm
@DeDude: Definitely. Populism (or faux populism) will rule 2010. 2009 was the year of the bailout. 2010 is the end of all that (or at least the appearance of it).
January 21st, 2010 at 12:53 pm
Looks like DeDude.
January 21st, 2010 at 12:55 pm
On top of that anxiety of Ben confirmation, Volker vibes in the media, AIG snippets and preparation for elections.
January 21st, 2010 at 1:00 pm
Looks like Obama called the bottom in the market last March, and not he is calling the tops in the market?
January 21st, 2010 at 1:07 pm
Did anyone see the Daily Show last night? Stewart’s piece on Cramer’s claim that the election of Scott Brown would lead to a massive market rally was hilarious!
http://www.thedailyshow.com/watch/wed-january-20-2010/indecision-2010—the-re-changening
January 21st, 2010 at 1:11 pm
moss-
thanks for the heads up on the ZH article- good stuff
January 21st, 2010 at 1:33 pm
@Mannwich; Yes the sheeple refuses to be shaved naked with the tax-razor so they shall be shaved naked with another kind of razor. I see sharpening of the oil-price razor, the unemployment-razor and the health care cost razor, as they run away from one razor they run into another. But apparently their main concern is not about being shaved naked, it is about being shaved naked by a razor held by the big bad gobin’ment hand. I don’t think I ever will learn to understand the sheeple :-)
January 21st, 2010 at 1:36 pm
@ franklin411
Cramer’s a hack…
I’m in the Boston area and along the same lines, I actually wrote a letter to the editor in our local paper to say that investors/Wall Street had apparently weighed in on the election of Scott Brown. The markets had spoken and were tanking. Of course it was a tongue in cheek reference to all those hacks who claimed that the market went down after Obama’s election because of Obama, not because there was anything wrong with the economy before, of course…
If it gets published (I’ve had a good record there), I hope the readers get it.
January 21st, 2010 at 1:38 pm
@DeDude: Yep, somehow the sheeple think there’s an easy way out of this mess with little pain involved for them (who cares about other people though in the “I got mine” culture). Sadly, they’re going to find out that deflation might end up being worse than inflation, at least over the short to medium term, and they’ll want to blame someone. That someone will likely be (rightly or wrongly) Obama, which means, to me, he should have concentrated on just doing the right things from the get-go, re-election hopes be-damned. Now he’s likely to go down as a modern-day Herbert Hoover instead of FDR. Half-measures and incremental symbolic “victories” don’t cut it in times like these. He blew it months ago by siding with Wall Street and big health insurance/pharma over Main Street. Totally misread things.
January 21st, 2010 at 1:48 pm
1114 SPX is a major line indeed. Year opened right there and the 50 dma sits there as well. So far we bounced off twice today. Any close below there and I believe 1097 is the next major line in the sand. That level was tested for weeks.
January 21st, 2010 at 1:52 pm
Mannwich, well said. We will all pay in the end for putting band-aids on infections. These weren’t mortal injuries inflicted by over-consumption and risk-taking, they were infections that needed to be treated. Instead, we just printed money and pumped it into the iBanks. Bad, bad idea. And now, government wants to tell us that they can manage healthcare for us? Oh good Lord…..What are the more attractive countries for me and my conservative family of 4 to relocate to? When I say conservative, I don’t mean under Muslim Law…..
January 21st, 2010 at 1:53 pm
@krice2001
Post a picture online if it happens.
January 21st, 2010 at 2:15 pm
As BR said (he knew this already in 2008),
“As the old cliche goes: “It’s not the news; it’s how the markets react to the news that matters.” We agree.”
Fannie Mae is Fantastic !
Wednesday, May 07, 2008 | 06:42 AM
http://bigpicture.typepad.com/comments/2008/05/fannie-mae-is-f.html
January 21st, 2010 at 2:20 pm
Mannwich,
“The real “top” won’t be in until Lloyd and co suck all of us little people in. We’re probably not there yet. Need to suck in some dip buyers first.”
How about we all fake going fully in? Perhaps, the top can be fooled in this way?
rc
January 21st, 2010 at 2:23 pm
@rc: LOL. Great point! Let’s all just SAY here that we’re “all in” when in reality we’re “all-in” short, and then watch it go…..
If only it were that easy, right? Obviously I was kidding. Sort of.
January 21st, 2010 at 2:51 pm
Democrats have the unfortunate tendency to say “the voters cannot be THAT stupid” when faced with lies, distortions and stupidity from the other side – and unfortunately they say that again and again despite of all evidence. The sheeple cannot be bothered to try understanding why things are bad so after x number of months they begin to blame whoever is in the white house. Nor can they be bothered understanding their own democracy and the fact that 41 Senators have much more power than the remaining 59. So yes Bama and the Dems have to clean up the turd left behind by Bush, and they will get sh!t on their fingers and be blamed for the stink – welcome to the American idiocracy.
I do not see that there were much of any realistic alternatives to what the Dems and Bama did. They were faced with an ultimatum from Hank and the Banksters, “pass this bailout or we will sink the country into a deep depression that you will be blamed for”. It was a lose-lose situation and they chose to not let the country lose with them. But by providing needed votes for Hank’s bailout plan they also made it harder for themselves to condem it later. Similarly, I don’t think Bama had much choice other than to at least try to get some bipartisanship going from the beginning. It failed miserably because the GOPsters didn’t want to have anything to do with anything that looked like a Bama success. But had he not tried he would have been pinned as totally responsible for the partisanship that most voters hate. I agree that half-measures will not cut it – but take a close look at how we have constructed our democracy. The only way a president can make real drastic change is by convincing 60 senators to vote for it. He will not get that by going to war with them, nor as the leader of a populist insurrection against them. Those things only work if the leader is someone from peoples own tribe and unfortunately a lot of people look with great suspicion on Bama as someone from another tribe. I think he is stuck and needs to abandon the idea of grand reforming legislation to fix all kinds of problem. All he can do is to make limited populistic proposals with real simple content and titles, push the house to pass it, send it to the senate and push Reed to get it on the floor where the GOPsters can make it go down in flames. Then get on the tube and hammer the GOPsters for being the little Wall Street pets they always were. Nothing will actually be done, but with enough of it, the sheeple should be able to understand what is happening and why nothing is changing in their favor.
January 21st, 2010 at 2:54 pm
[...] far, we have (had) a volatile few days, but five days is mostly noise,” Barry Ritholtz writes at The Big Picture, noting its too early to panic as 12-month charts show the long-term upward [...]
January 21st, 2010 at 2:57 pm
Ashpelham2; you and your family should consider the simple fact that the government managed health care systems of other industrialized countries are providing as good or better health care for about half the price. So you have to define your fears, is it expensive substandard health care, or is it soci@lsim.?
January 21st, 2010 at 2:58 pm
great annotations on the first one
January 21st, 2010 at 3:00 pm
“Let’s all just SAY here that we’re “all in” when in reality we’re “all-in” short”
Good luck with that one. They have your accounts so unless you are hiding all your dollars under the bed, they actually know this. When it comes to taking you to the cleaners they will leave nothing to chance ;-)
January 21st, 2010 at 3:07 pm
@bmoseley – the most common way to draw trendlines is to find 3 points that fit a line. You wouldn’t find 3 points if you used that lowest point in the beginning. It is subjective. One way to consider it is that that first low point is really a part of the previous trend down. What the new upward trend is showing is thesupport line of pullbacks from the upward trend that commenced with that lower point – since the lower point wasn’t a pullback from the upward trend that started at that point, then it needn’t be counted. But it is all subjective.
@rustum – I’m watching gold support at 1075 – if that support holds I’m in
January 21st, 2010 at 3:07 pm
I think the party’s over.
Too many subtle but fundamental things have changed in the past week. China is going to tighten, the US is going to re-form banking, Europe is coming up solid against national default issues and there is growing evidence that the US may be slipping into the double-dip.
January 21st, 2010 at 3:08 pm
Wait, go back…
Banks are risky?
January 21st, 2010 at 3:21 pm
The most important thing when you draw those stupid trendlines, is that you draw them the same way that almost everybody else do. It is not that there is some underlying market force magic that holds a specific price at a specific line. It is that enough people believe in those lines that the market action is influenced by them.
January 21st, 2010 at 3:28 pm
Dedude says-
“It is not that there is some underlying market force magic that holds a specific price at a specific line.”
Good point. It’s all “group think” so it’s a self fulfilling prophecy- I have mentioned that several times at this site-
but – be nice- Barry is probably basing his “market magic” on these charts
January 21st, 2010 at 3:42 pm
@ahab – that’s the nice thing about it though – gives one a little more certantude. If you’re betting that the price will move one way or another once it reaches a certain point, you don’t really care why it moves, just that it does. I’m watching to see what gold does when it hits 1075 – I know I’m not the only one watching that, and if it bounces upwards at 1075, I’m that much more confident getting in because I know that plenty of others are thinking the same way – and their demand will help the self-fullfilling prophecy aspect of it and feed on itself – likewise if it goes right through 1075, everyone who is watching it will know to go short and the price will react that way. Why fight it? Why not just enjoy the ride? It’s like that little edge that the house has at a gambling casino that keeps their profits from being a pure gamble.
January 21st, 2010 at 3:42 pm
“Barry is probably basing his “market magic” on these charts”
And nothing wrong with that as long as you remember where it is coming from, and who is manipulating it to their own advantage. There is a reason that sometimes the lines hold and sometimes not; the big boys have to get in position first. Those retailers and teacher’s pension fund managers first have to be send out to take the bullets.
January 21st, 2010 at 4:03 pm
Today’s close was pretty close to the day’s low. When’s the last time that happened?
January 21st, 2010 at 4:04 pm
If it “corrects” to a fair price, it will correct some 40%.
Google tanking off EPS just out…even as Jim Goldman tries to talk it up on CNBC
January 21st, 2010 at 4:12 pm
Now for the bad news…21 day put/call, even after two days of market losses, still sits quite a bit below previous 3 year lows.
On the bright side, the dollar is rallying, helping all savers and prudent Americans. And Barack, you ate the man…to paraphrase him, “the US taxpayer cannot subsidize Wall Street risk taking and bail them out when they lose.” BRAVO!!!!!!!!!
January 21st, 2010 at 4:23 pm
E- to- T-
understand your point completely-
trying to get all the little triggers lined up before pushing the buy or sell button- makes sense- nothing against it-
my only observation is that many are acting on the same assumptions and thereby creating the dynamic that sends the price up or down- a self fulfilling prophecy-
whether it’s true or not I don’t know- but it is an interesting thought
January 21st, 2010 at 4:30 pm
IMHO trend lines are useful because a lot of traders follow them.
January 21st, 2010 at 4:51 pm
SPXU?
January 21st, 2010 at 5:11 pm
“trend lines are useful because a lot of traders follow them”
and they are very useful for the big iBanks because they can use the “defended” lines to convince pension funds and investors to keep throwing money into the market (“don’t worry the xx number was not taken out”), as they themselves slip out the backdoor.
January 21st, 2010 at 5:47 pm
Barry,
I think that you’ll find that the trendline is more easily seen and can be drawn better on the weekly charts.
Please see link:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3738500
I have included the DJI, Nasdaq, and Russell 2000 for the sake of completeness.
January 21st, 2010 at 9:00 pm
IMHO, trend lines are better drawn using arithmetic formulae. These take peaks and troughs into account but do not involve subjective decisions on which peaks/troughs to use. The resultant line will frequently be right through the middle and, as is the intention, eliminates both the subjectives and the noise.
January 22nd, 2010 at 12:02 am
Not much mention today about the 36,0000 being added to the unemployed list. And the previous weeks numbers were raised by 11,000. As usual the so called smart analyst and economist missed this one again. Most expecting the numbers to move lower. My economic indicator remains the checkout lines at wallmart. I was there this morning and out of the 30 checkout counters, I counted about 5 or 6 that were open. Not a good sign if one is expecting the economy to be recovering shortly. My bet is that were heading for a double dip recession. Look for the Unemployment numbers to continue to push higher. Obama doesn’t have a clue as to how to create or even save a job. One thing he does know is how to increase the debt and deficit in a big way. Hope and Change might mean you hope you get a little change back after you spend your unemployment check at Wallmart.
January 22nd, 2010 at 12:51 am
Now that was a thing of Beauty, just like old times :) If you missed Tuesday tell you were not paying attention. ;) It will be interesting to see what the DXY does here.