Whenever we have a very red or green day, I like to find the most persuasive piece I can arguing for the contrary position. Today, that would be something bullish.

What is rather surprising is that I found just such an upbeat contrary take in the usually skeptical Alan Abelson’s column. Abelson notes that while this has never been a rip-roaring recovery, it is slowing perceptibly. He adds, however, that “doesn’t imply a return to the dark days of the late, unlamented Great Recession.” There is a huge difference between a soft patch and a full blown double dip.

To demonstrate such, he relies on InvestTech Research‘s Jim Stack, who notes that investors are more prone to overreact to each bit of news:

“Every bull move worthy of the designation suffers the occasional pause for breath. During the great bull market of the ’90s there were 24 corrections of more than 4%, and during the big market move upward from October 2002 to October 2007, there were nine. With the hangover from the worst recession since the 1930s accompanied as it was by a cataclysmic crash in stock values, it’s scarcely surprising that equities are more prone to the jitters than their more recent predecessors, and that this spirited cyclical rally, which is a mere three years old, already has suffered 11 spasmodic episodes . . .

We might add that investors have also grown more easily spooked for the very good reason that the world is far more dicey, and its woes more encompassing, than even as recently as five years ago. And investing, like so much else in the realm of finance, has become increasingly a short-term affair. This quickening means that now, more than ever, it pays to remember that no one ever went broke taking a profit . . .What also makes us skeptical of those headlines of the horrors about to be visited on the markets are the sentiment figures for both amateur and so-called pros. On that score, in the latest tally of members of the American Association of Individual Investors, 33.8% were bearish, 31.2% bullish and 35% squirmed uneasily on the fence.

Similarly, among the advisory services polled by Investors Intelligence, the bulls came in at 44.1%, down from 48.4% and 52.7% the previous two weeks. Bears, meanwhile, edged up to 23.7% from 21.5% the preceding two weeks. These readings aren’t by any means extreme, but the trend tells a contrarian that the increasingly dubious equity strategists have got it wrong.

So what else is new?”

Its worth noting that eventually all markets roll over, but so far its been a losing game guessing where the top ultimately is. Better to let the market let you know when its rolling over for real.



The Scare Mongers
Barrons, April 21, 2012

Category: Contrary Indicators, Markets, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Market Corrections of 4% or More”

  1. HarryWanger says:

    “Better to let the market let you know when its rolling over for real.”

    True…but the SPX upward trend line was broken 4/9. There is a perfect H&S pattern forming as well.
    I know, all T/A stuff but pretty decent indicators of when markets are starting to roll over.
    And of course, this doesn’t even take into account terrible data from Europe confirming that recession is rearing its ugly head there.
    But none of this matters since we’ve decoupled from everything bad in the world and I’m just a “Scare Monger”.

  2. VennData says:

    Could this be the SuperPAC correction?

    All the uber rich 1%ers selling stocks (and driving down markets gleefully) to contribute to Karl Rove’s SuperPAC?

    How much does Rove make on that …oh, we aren’t allowed to know, even though we ARE allowed to know what the top men make at private sector companies… I see. Thanks Supreme Court…

    Thanks to former President Bush and George W. Bush for your non-partisan Supreme Court nominees, like never-asks-a-question Clarence Thomas for their wonderful unlimited money in campaigns ruling. Thanks.

  3. socaljoe says:

    Nobody ever went broke taking a profit?

    Maybe true, but many have suffered real losses being in cash or fixed income with negative real yield.

    In fact this will need to be the case going forward if financial repression is to work.

  4. [...] Corrections happen.  (Big Picture) [...]

  5. RothcoUDipthtick says:

    That is a loaded statement…“Better to let the market let you know when its rolling over for real.”

    What indicators would tell you?

    Do you sell at a 20% loss, thinking another 20% might happen, or just never sell waiting on the Bernanke put?