Is the Market Correction Finally Here?

 |  Includes: DIA, DXD, QQQ, SPY, VXX
by: Larry MacDonald

Boy, those bearish commentators just aren’t letting up. Their growling only gets louder. Perhaps there is going to be a correction of some sort after all, especially with stock markets up about 50% over the past six months.

If you are a trader with high risk tolerance, you might consider the exchange-traded note tracking the VIX, the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX), or some double-short bear exchange-traded funds, such as the:

  • UltraShort Dow30 ProShares (NYSEARCA:DXD), or
  • Horizons BetaPro S&P/TSX 60 Bear ETF (TSE:HXD).

If you aren’t a trader, you’ll of course sit tight and keep your focus on the long term (and who knows, maybe the market will keep climbing this fall). In any event, here are main points from reports that crossed my desk recently.

From TrimTabs Investment Research:

  • selling by U.S. corporate insiders in August surged to $6.1 billion, highest amount since May 2008; the ratio of insider selling to insider buying hit 30.6, the highest level since TrimTabs began tracking the data in 2004
  • rally supported by short covering — short interest on NYSE stocks plummeted by 10.3% in the second half of July

From David Rosenberg of Gluskin Sheff:

  • signs of buyer fatigue appear to be emerging as signaled by the stock market’s lukewarm reception to recent good news (increases in house prices/sales, durable orders, and consumer confidence)
  • 50% gain in the S&P 500 since March has market trading at 130 times trailing (reported) earnings
  • Investors Intelligence survey shows 51.6% respondents in the bullish camp with just 19.8% in the bear camp — market sentiment hasn’t been this “smug” since the autumn of 2007 (right before the fall)
  • weakest periods of the year, September and October, just around the corner
  • car purchases to retrench in U.S. following end to cash-for-clunkers program

From IHS Global Insight:

  • When given sufficient incentive (as in cash-for-clunkers) consumers will spend. But reduced wealth, high debt, tight credit, and a weakening labor market are all weighing on consumers. Consumers remain a missing link in hopes for strong recovery” – Nigel Gault, Chief U.S. Economist for IHS Global Insight.