Who is voting for a Correction Then?
The signs are clear; risk is overloved, overbought and overextended but does this necessarily spell the inevitable correction?
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Since Augsut 2010 the SPY has barely touched its 50 day moving average. Indeed, it has stayed well clear of it. Those, like yours truly, who entered 2011 fancying some bloodletting have so far been disappointed.
Plan B Economics points to the obvious that often times in the world of investing, a choir chiming for an event to unfold is the best bet that it will not occur.
I’ve had a pretty good sense in the past knowing when the “correction” trade is overcrowded. I gotta say that I definitely sense that now. Bulls are on guard for a correction and bears are calling for one too. In fact, I’ve never seen such a unanimous call for a correction as I do now in a long time. Near the low of the day I saw a headline from bigcharts.com that said some portfolio manager claimed the January correction has started. The market didn’t even go in the red for the year yet and this guy’s already saying the correction has started? Talk about being over-eager. I believe this group think call for a correction means that a correction either won’t happen or will be quite shallow, well below expectations.
As a good friend of mine noted; this is like second-guessing the second-guesser. Market timing is best performed when frontrunning the crowd, not standing in the middle shouting like everyone else. On the technical side, I would like to see two (or three) straight days of declines in the SPY before calling it.
The more interesting point is how deep (or shallow?) it will be. A move to the 50d ma marker would be something like 4.15% and come at around 1221 at current levels. Sounds about right to me.