The Market Will Correct, But Enjoy the Ride While It Lasts

by: Roger Nusbaum

Roger Nusbaum submits: 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.