Rolling Correction May Foreshadow General Correction

In retrospect, it appears that the long-anticipated stock market correction actually got underway in a stealthy manner late last summer, and it is now beginning to pick up steam as more stocks join the downdraft. So far this has been a rolling correction: First the homebuilders, then the health care sector, next the transports, and most recently energy and materials have gone into the tank.

Information technology is beginning to take a hit now, but the homebuilders, health care and airlines are recovering some of the ground lost earlier. Energy is beginning to show some bounce as the bargain hunters move in, while materials appear to have more downside. The industrial, consumer discretionary, and banking stocks are starting to look shaky. REITs, telecoms, and utilities have held up fairly well so far, but this correction is not likely be over until they have seen a wave of selling too.

I estimate that the correction is about half over in terms of duration. The market is short-term oversold, and in the near future we are likely to see a rally. If a rally occurs I will take advantage of it to lighten my position in certain utility and bank stocks. I believe any rally that occurs will soon give way to periods of increased selling momentum. When the whole correction is behind us, probably by March, I think that the weekly S&P chart will appear to have drifted sideways with a downward bias for several months.

I have been gradually building up a cash reserve since November. Now I am sharpening my pencil and developing a list of stocks I would like to buy at certain bargain price levels, including several high-beta growth stocks of the type I normally avoid. Instead of waiting for confirmation that the correction is over, I will gradually buy some of these stocks and ETFs, but only when I judge the market to be seriously oversold for the high-beta issues, and of course I will not buy more defensive stocks either, unless they are meeting my criteria for price and technical action. My purchases will be announced here as they occur.

It is well and good to have an action plan, but we must also train ourselves to expect the unexpected: unpredictable random events which cause chaos. Murphy’s Law dictates that one of these unfortunate events is likely to occur at the worst possible time for the stock market.

Comments

[William Fray:]

I hate the new format which opens the articles in the browser!!! The prior all-email format was the best format I've ever seen on the internet. Quick, convenient and easy. Please go back to it.

BTW, your service is excellent - but you have given up the best email info formulation the web has seen.
Regards,
W Fray

2007 Jan 11 01:23 PM

[William Fray:]

David,
Thanks for your interest and response. Per Jim's suggestion I have set up the Seeking Alpha filter/folder and switched to immediate. The best solution, which Jim says you're working on, is to give a choice so that dial-up users could select web based content and broadband users could use the digest/email content format.

I am hoping/waiting for that version.
Thanks again, you have a great service.
Bill Fray

2007 Jan 12 04:36 PM

[David Jackson:]

Hi William,

First off, you can still get full articles by email by changing your delivery mode to "Immediate" from "Digest". The only difference is that you'll now get each article emailed to you individually as soon as it's published. If you're getting lots of email, you can set up a filter (by sending -- Seeking Alpha) in your email program to put them all in one folder, and then you'll be able to skim the headlines and read the article you want without coming to the web site.

The reason we moved to headlines only for digest mode is that many of the emails we were sending out were getting enormous. One person told us that reading it via a 56k modem was a nightmare!

Let me know how switching to "Immediate" mode goes, and whether that solves the issues for you.
David

2007 Jan 11 02:48 PM