A reader left a comment asking if I thought there would be a major correction in the market. The far extreme of normal corrections seems to be about 30% down. I do not expect that big of a correction. I would say the probability of that is very low.
The market has defied countless fundamental, technical and cyclical obstacles this summer and now into the fall. I have been expecting a decline for a while and have been wrong. In almost every post on this topic I have said the market could work higher in spite of these obstacles and that has been the case. While confounding, this is not unprecedented. This month has gone better for the portfolios I manage because energy and materials have started to retrace nicely.
Markets obviously cannot go in just one direction. There will be a correction again. The next one may or may not be painful as corrections go but at some point again in our lives there will be a 30% correction, I just don't think it is coming now. Keeping in the realm of normal I might guess 15% or so. Again this is normal in the nature of market cycles but if you have been reading this site for a while you know I would have already expected it to start. For now I am out of touch with the timing of such a move which is just fine because I don't really object to higher stock prices.
Yesterday on my visit to the Daytrade Team's Trading Room I said that I thought that the market had discounted a hawkish statement. I felt that too dovish would cause yields, the dollar and stocks to go down. Some folks are saying that the statement was too dovish and yields and the dollar did go down but stocks rallied; more confounding action maybe?
Now it looks like the S&P just went into the red, maybe on the housing data. Maybe the open today will be the near term top but since I am so out of touch maybe instead a week from now we'll be at 1405 on SPX. I am being a little sarcastic. For now though the market clearly has momentum regardless of where it is coming from and I don't need to be exactly correct about when it turns.
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5 comments:
Maybe I'm a minority of one, but predicting precise directional market swings is something I don't think about,nor do I expect others to do so - except for entertainment purposes. Lou Rukeyser used to chide economists and market direction prognosticators by commenting "over the past ____ years they have prediced six of the last two recessions".I used to actually yell at the television sets where the guru heads were placed like giant globes of wisdom. Now,more relaxed and less perplexed by the world,I am tolerant of personages who preach absolutely, positively higher (or lower) markets. Or "absolutely" about anything else, except about mortality.I have also grown tolerant of salads with more weeds than lettuce,wedding expenses,late airflights,mentally challenged drivers and the 6 zillion channels of cable I pay for-enjoying four of them.After November 7,I may also have to reluctantly tolerate democrats, warts and all.
If I was looking for a portfolio manager, I wouldn't be looking for someone spending ANY time in a daytrading hot box.
If you expect to be taken seriously, stay away from the daytrading crowd. All they know is how to lose money.
Thanks T, you may have to live with the dems as you say.On the plus side maybe even less will get done?
to Anon at 10:24, you are missing the point entirely. I gave a presentation about what I thought would be market reaction in stocks, bond and forex after the fed, not much different than the type of content posted here. That the audience was comprised of people with a short term time horizon is totally irrelevent.
I agree with T entirely. "Predicting" market direction, duration, or precise levels is impossible.
That said, people will ask me why I use market timing models. My response usually includes a blackjack card-counter analogy. The card-counter can't predict the next card he will be dealt. He can't predict a winning hand, or predict he will walk away from the table without a loss. The card counter simply manages risk by shifting the odds in his favor.
First I agree you are out of touch with this market, it is going to continue to inch higher staying well below average in total returns for suach a long bull market with out any serious corrections.
Second, you are much better than most commentators. Get as much exposure as you can even if it does not seem to suit you (ie day trading)
Continue to broaden your horizons. I expect you to do very well in the future. I also expect you to get back in tune with the markets (it happens to all of us)
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