Tuesday, August 19, 2014

Dips Rather Than Corrections (excerpt)

There were some hair-raising corrections in the current bull market during 2010, 2011, and 2012. They were triggered by fears of a double dip in the US, the disintegration of the Eurozone, and a hard landing in China. The one during the summer of 2011 was exacerbated by the debt ceiling crisis in Washington, DC. The last correction occurred during the fall of 2012 as investors dreaded going over a “fiscal cliff” in the US, which was averted at the last minute at the start of 2013. However, the selloff wasn’t an “official” correction since the S&P 500 fell 7.7%, short of the 10% decline that is deemed to be a bona fide correction.

Since the start of 2013, there have been 10 dips that have retested the 50-day moving average of the S&P 500, as I’ve noted previously. They were mostly triggered by similar concerns as the ones that triggered the earlier corrections. The dip at the beginning of this year was caused by fears of an emerging markets crisis. It lasted just eight trading days, from January 22 to February 3, with the S&P 500 falling 5.6%, the worst dip since the start of 2013.

The latest dip started on July 24, when the S&P 500 peaked at a record 1987.98. It seems to have ended on August 7, with the S&P 500 down just 3.9% from its recent peak. After yesterday’s big rally, the stock composite is now only 0.8% below the peak. I have been in the dip camp rather than the correction camp. This downdraft was unusual because it was triggered mostly by geopolitical risks, which have been mostly ignored during the current bull market.

Often in the past, I’ve noted that the current bull market has been marked by a series of “endgame” corrections followed by relief rallies to new cyclical highs, and then new record highs since March 28, 2013. I also noted that at the start of 2013, when the widely dreaded fiscal cliff was averted, our accounts showed symptoms of anxiety fatigue. They were tired of worrying about endgame scenarios. That might explain why there have been dips rather than corrections since early 2013.

Today's Morning Briefing: Another Relief Rally. (1) Corrections followed by dips. (2) Averted “fiscal cliff” led to anxiety fatigue. (3) Ten dips since start of 2013. (4) Good buying opportunities at the 50-dma line. (5) The latest dip was on rising geopolitical risks. (6) Some relief on Ukraine, Gaza, and ISIS sparks latest relief rally. (7) “Fairy Godmother” will speak on Friday. (8) Yellen said it all in 2009 speech: Premature tightening would be a mistake. (9) Broken record: Forward earnings does it again. (10) Q2 had lots of positive earnings surprises. (More for subscribers.)

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