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Durable Equity Market Correction--Update

Jan. 29, 2014 9:31 AM ETSPY, IWM, QQQ, DIA
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dgodfrey's Blog
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Seeking Alpha Analyst Since 2009

Global Trend Following Since 2003

On December 18, I shared my views on why I believe a durable equity market correction was on the near term horizon. All of those ideas continue to hold.

As an update this morning, I would also like to mention that the recent declines in the broader market indexes (i.e. the S&P 500, Russell 200, NASDAQ 100 and DJIA) have all been large enough and fast enough to strongly suggest that these price indices are starting to confirm my earlier thinking.

As I look at all of the pieces of the puzzle, I have to say that I think the size of what may be an imminent market price correction looks like it might be larger than people are expecting (i.e. greater than 10%). In fact, certain elements suggest that the correction could be rather larger.

In some ways, the foregoing analysis is the easiest part of what an investor has to do. The hard part is to translate this thinking, effectively into an increase in the value of an investment or trading account. My thinking on that is that for a while the market may still be a little choppy and provide opportunities to sell on strength (if that is what you decide you want to do and/or is in your best personal interest. I am not your adviser, so please consult him or her as to what you should be doing in the markets at a time like this).

If the market stays choppy and provides both up and down price action you will have a chance to make any changes to your portfolio in accordance with those opportunities. Looking at my analyses and thinking about how the markets behave, I do believe that if the correction does occur as I am expecting, after several weeks of choppiness, a full-fledged downward correction might ensue.

One of the reasons I believe that I believe a relatively larger correction is in our near term future is the durability of the indicators that are "flashing" at the moment. These suggest several months of price weakness. That is enough time to somewhat thoroughly change prevailing bullish investor sentiment to the opposite. If that occurs, there will likely be a period of "panic" selling at the time sentiment goes to bearish extreme levels that we have not seen for a while.

The foregoing is not investment advice. I am not your investment adviser, do not know your personal financial situation or holdings and have no idea what your risk tolerance or financial objectives or needs are. Please consult with your own professional prior to taking any actions in these risky markets.

Best wishes and let me know if any of the foregoing was helpful to you.

Not a recommendation. Do your own due diligence.

Disclosure: I am short SPY, QQQ, IWM.

Additional disclosure: My (net) positions in the equity markets change day by day. At any time, short positions may be partially or more than fully offset by a variety of other non-identical, long positions.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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