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We Need A Correction

Jan. 12, 2014 11:47 PM ET
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timsabin's Blog
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Seeking Alpha Analyst Since 2014

As of September 2013, I am retired, doing some tutoring work to give back to the community. In my former life I was a computer programmer and analyst. I now spend my financial hours trading stocks, primarily for the dividends.

I am not one to say we are headed for a crash. But, there is something that must happen if we are to avert one.

We need a correction. The sooner, the better.

Historically, a bull market continues with corrections (defined here as a 5% or greater drop) about 7.6 months apart. Here are the dips and corrections going back to 2012 (listing the S&P values):

12/9/13 - 12/13/13: 1808.37-1775.32, a drop of 1.83%

9/18/13-10/8/13: 1725.52-1655.45, a drop of 4.06%

8/2/13-8/27/13: 1709.67-1630.48, a drop of 4.63%

5/21/13-6/24/13: 1669.16-1573.09, a drop of 5.76%

10/4/12-11/15/12: 1461.40-1353.33, a drop of 7.38%

4/2/12-6/1/12: 1419.04-1278.04, a drop of 9.94%

From the first correction to the present, the spacings between corrections are 6 months, 7 months, and 8+ months. Judging by history, we are due for a correction. Right now, it would probably be mild - 5% or so. My concern is that if this market doesn't correct, we could be looking at 10%, 20%, or more when the market does fall - and it will.


"Why You Should Prepare for a Stock Market Correction", Jim Stack, Forbes.com

S&P Graph, last 2 years

Disclosure: I am long VOO, QQQ, IJR, IWS.

Additional disclosure: I have also written covered calls on these 4 ETFs.

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