The S&P500 had its worst daily decline for the year.  The VIX spiked over 19 percent, its biggest 1-day increase in 2013.  The dollar index closed at its highest level since November 16th,  which was the day the S&P500 bottomed and began its relentless 14 percent move to yesterday’s high of 1530.   Gold got clocked with its 50-day moving average falling through the 200-day generating the feared “death cross.”

It’s now or never for that long anticipated equity correction.

We do see a few catalysts that may bring out some sellers — and there must be some real sellers to generate a decent correction.  A dearth of sellers has been a major reason for the recent melt up, in our opinion.
Selling catalysts:

1)  China tightening to cool real estate speculation.  See here;
2)  Housing stocks, the leaders in the latest move, are rolling over.  See here.
3)  Sequestration and fears of fiscal drag on demand and economic growth.  See here.
4)  Fed heads getting nervous over super loose monetary policy.  See here and here.
5)  The hit to consumption due to the rise in gas prices.   See here.
6)  Equities have been generally overbought.  See here.

We expect the correction to be relatively shallow, less than 5 percent, as many buyers seem to be waiting in the wings ready to pounce.  You never know how psychology will change with negative price action, however.  As prices move lower fundamentalists tend to retrofit their views to the price action.

Don’t blink.  Stay tuned.

Feb20_S&P500_RTN

Feb20_S&P500Feb20_VIX

Feb20_Dollar

Feb20_Gold

 

(click here if charts are not observable)

Category: Markets, Technical Analysis

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.

8 Responses to “Correction Time? Now or Never…”

  1. Petey Wheatstraw says:

    All things considered, I don’t believe it’s now or never.

    Everything down but the dollar. A strong dollar is still the worst enemy of the indebted, and we are, despite lowering balances on private debt, very indebted.

    Eventually there will be a correction (and it still could be right now), but as the old saying goes — “the markets can stay insane longer than you can stay solvent,” as true as it’s ever been. Maybe more so.

    There’s insane, and then there’s bat-shit crazy. I think we’ve gotten quite comfortable with normal old, run-of-the- printing-press insanity.
    ___________

    On a somewhat tangential note, and regarding your recent post on discontinuing comments, I have always thought it interesting that when big things happen, your comments go way up. An interesting barometer of angst among the readership, if nothing else.

  2. TLH says:

    The PE ratio on the S&P 500 is 16.2. What would interest rates be without government manipulation? Will government policies help or hurt future earning? Will inflation or robust economy end QE and zero percent interest rates?

    ~~~

    BR: Which P/E is that? Forward, trailing, GAAP, Reported?

  3. gms777 says:

    Re: China’s real estate market…ZeroHedge has a piece about a Beijing policewoman whose mortgage is 70 percent of her pay.

    “The game [i.e. the Chinese economy] is completely rigged,” says China expert Leland Miller in a Talk of the Town piece in the Feb. 25. New Yorker. He hired pollsters around China to get at the real numbers and is selling his results for six figs. to clients. “There is no way to validate whether any of the Chinese [government's] numbers are right or wrong,” he says.

    Of course.

    NYer also has a long article about the total real estate debacle in Spain. At its peak, real estate and construction occupied 43 percent of Spain’s GDP, buliding one million homes a year. Spanish unemployment is 25 percent! For people under 25, the rate is 50 percent!

    Take Spain and multiply it by, what, 10,000 and there you have China….

  4. Concerned Neighbour says:

    I find it telling, and hardly surprising, that the only selloff of any magnitude in recent memory came after speculation that the punch bowl might actually be taken away at some less than infinite future point. If anyone had any doubts why the markets are trading at current levels, let me just say that the evidence for a certain cause continues to mount.

  5. TLH says:

    BR
    I just go to Vanguard and look at their 500 index fund. Under the portfolio tab, it gives the 16.2 number. I just try to keep it simple.

  6. leveut says:

    Observation: one or even two or three data points is not a trend. It seems to me that within the past few years any down day, singular, is described as a correction, as opposed to more traditional definitions of 10% down etc over periods of time, i.e. actual trends. Statistically, even a stable system will have normal fluctuations that are random, and that are meaningless insofar indicating a change from the stable system. Those random statistical fluctuation can be large. What chart one shows, eyeballing it without a math analysis, is random statistical fluctuation.

    Question: as long as the Fed is actually shoveling out the money, why would there be a correction, of the traditional sort?

    “It’s now or never for that long anticipated equity correction.”

    Wall Street Maxim: the market can stay insane longer than you can keep your money.

  7. constantnormal says:

    Never? Nobody ever told me that “never” was even a possibility … this sounds interesting, please tell me more …

  8. Robert M says:

    2 questions one comment
    (1) is the vix chart used the “new” methodology or the old?
    (2) is their gold chart futures or cash?

    This will be real deal if the disconnect in the market place between fed action and assets is recognized as the emperor’s clothes. The mirror should manifest itself in the real estate market as cash only buyers(institutional and individual) find there is neither anyone w/ the income to rent them(imagine Geithner’s home as Section 8) nor the yang of their model, anyone to buy the homes regardless of where they are because they cannot purchase a mortgage based on their credit histories and income.