Weekend Market Commentary: How Much Is The Markets Going To Fall?
UPDATED: 1000 EST 2014-08-16
Assuming you are in the camp that the bears are going to eventually going to take over and send the averages down, the question then becomes; how much? Prognosticators love to make 'educated' guesses and are usually 99% incorrect.
So this weekend we cover some of the SWAG's (Scientific Wild Arse Guess') and you pick out the market level decline you think will be the one that will happen.
So depending, again, what you want to believe is the basis of when and how much the markets are going to fall. We haven't have a 10% correction for several years, so that becomes a viable candidate right off the bat. The markets are susceptible to investor's inner worries. That is, if they feel we are in for a decline, Mr. Market goes out of his way to prove them wrong and keeps climbing. He always waits until bullish euphoria builds to a crescendo and complacency becomes the word of the day, then he pulls the financial rug from under you. Just how far the markets will slip is the name of this game.
NEW YORK (CNNMoney)
The last major sell-off on Wall Street occurred so long ago that Hollywood has had time to churn out three different X-Men movies since then.
To be precise, it's been 1,042 days since the S&P 500 was last in "correction" mode, a technical term for a 10% (or greater) drop.
"It's unnatural to have gone as long as we have without a correction," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
A correction typically occurs about once every year and a half, according to S&P Capital IQ. But it's been nearly three years since the slump that ended in early October 2011.
Sam Stovall, chief investment strategist at S&P Capital IQ says, "The trigger points, at least so far, aren't significant enough to take us down 20%,"
We have to agree that we haven't seen any of the geopolitical events that could trigger anything, much less a 20% correction. Mostly we have seen 3% to 6% declines with the markets roaring back to set new historic highs, not even close to a 20% fall. But Barry Ritholtz feels that a 20% drop is possible. He goes on to say, 'Corrections happen. Get used to it.'
The simple reality is that corrections come along on a regular basis, and for reasons that are undecipherable or indeterminate. This is the way it is and always has been. Anyone who tells you he can predict when a 5 percent or even 10 percent correction is going to start and end, and do so with any degree of consistency, has something very expensive and mostly worthless to sell you.
[Many] trading days have passed without a 10 percent retreat. If you have grown so complacent as to have forgotten this, then you might very well be in the wrong line of work.
Here are a couple of charts that could graphically depict several scenarios of just how far the markets could drop. The worst case scenario would be a plus 11,000 point crash to the area of 5750 on the DOW in which case we would witness many a suicide from tall buildings on Wall Street. These charts are real, scary and only time will tell if these dire chart pattern possibilities will come to fruition.
Below are two DJI charts going back to 1927 ... one is a simple yearly tick chart and the other is a semi-log tick chart.
When looking at both charts, note that the current level is at the top of an expanding wedge pattern which cyclically should be moving down to the bottom support line. This is the predicament the Federal Reserve is in now.
They want to keep pumping in money until the economy can function on its own without QE money, but they are running out of time due to where the DJI is in its cycle.
This chart shows the DJI plotted in a semi-log format.
(Click on chart for larger view.) http://www.stocktiming.com
These charts shout not be dismissed lightly, but as to a decent down to the 5750 region on the DOW is unlikely - err, maybe! What is more likely, is that a 'new' chart pattern will emerge and modify the decline to something not a drastic, again, maybe.
We have opined in past articles (here) that a 'correction' will begin very slowly at the end of September this year and others have stated that it will begin after the 1st quarter in 2015. Some say a real bear market will start in 2018.
Whatever there WILL be a correction, maybe a crash, in the future and it could very well blow your socks off. So many analysts have said in the past that monster corrections are a thing in the past and you need not to worry. I am not so sure about that lack of concern; what do you think?
"The stock market has recovered so sharply for so long, you have to assume somewhere along the line we will get a significant correction. Where that is, I do not know." - Alan Greenspan, July 30, 2014
(Follow Closing Market Averages at end of this article)
WTI oil closed Friday at 97.03 (up +0.14 (+0.15%) )
Brent oil closed Friday at 103.14 (up +0.46 (+0.45%) )
Gold closed Friday at 1305.40 (down -10.00 (-0.76%) )
Copper closed Friday at 3.107 (down -0.002 (-0.05%) )
If you would like to get advanced buy/sell tweets, sign-up in the column to the right of this post by clicking on the 'Follow' button. Write me with suggestions and I promise not to bite.
Friday's Closing Market Numbers
To contact me with questions, comments or constructive criticism is always encouraged and appreciated:
Written by Gary