Weekend Review: Just A Correction, Or Something Bigger

AAA-Weekend-Reading-ListEarlier this week I posted two pieces of analysis with respect to the recent dive in the markets. The first discussed the possibility that this is just a correction within an ongoing bull market. The second delved into the possibility that a new cyclical bear market has begun. Only time will tell which is truly the case.

However, in ALL cases, the initial decline led to a subsequent bounce and ultimately retested previous lows. As shown in the chart below, this was the case in 2010 and 2011 which were ultimately followed by Federal Reserve interventions that helped the bull market regain its footing.

SP500-2010-2011-Crash-082515

The question is whether, with economic growth rates slowing and deflationary pressures building, will the Fed again intervene by postponing rate hikes and injecting liquidity? Or, is this recent correction just the beginning of something larger? Only time will tell for certain. However, there is mounting evidence that we are indeed closer to the end of this bull market cycle than the beginning.

This weekend's reading list is a smattering of views from bulls, to bears and everything in between as to the recent correction. Is it just a correction to be followed by a resumption of the bull market? Or something else?


THE LIST

1) Panic Attack Or Start Of A Bear Market by Ed Yardeni via Dr. Ed's Blog

There have been lots of panic attacks since the start of the bull market in early 2009. The first four of them occurred from the second through the fourth years of the current bull market, and they were full-fledged corrections. They were all triggered by worries that a recession was imminent, with anxiety focused on three major and varying concerns: a double-dip in the US, a disintegration of the Eurozone, and a hard landing in China--all having the potential to cause a global recession either individually or in combination. When those fears dissipated, relief rallies ensued."

Yardeni-SPX-082715

Read Also: Was Monday's Plunge Capitulation, Nah! by Simon Constable via Forbes

2) Dog Days Of Summer Not Over Yet by Jeff Hirsch via Almanac Trade Tumblr

"The Dog Days are not over for the market. This hazy, hot and sultry time during July and August were named the Dog Days of summer in antiquity by stargazers in the Mediterranean as the time period before and after the conjunction of Sirius, the Dog Star of the constellation Canis Major (Big Dog) and the sun. Back in the day the Dog Days were often plagued with, fever, disease and discomfort.

Selling continues to plague the stock market and we expect selling will continue through September, the other worst month of the year along with its neighbor August. September is the worst month of the longer term since 1950. Around this time last year I was on CNBC and the other commentator in the segment, Dan Greenhaus, Chief Global Strategist, BTIG (Great guy and analyst whom we respect and does great work), keenly pointed out the S&P 500 had been up in 8 of the previous 10 years from 2004 to 2013. So maybe September was not bad for the market anymore."

Read Also: 10 Things To Consider About Recent Market Panic by John Ogg via 24/7 Wall Street

3) What Happens Next Is Important by Adam Grimes via AdamHGrimes.com

"In October 2014, the selloff in stocks was strong enough (i.e., generated enough downside momentum) that we might reasonably have looked for another leg down. If that scenario was in play, what we "should have" seen was a fairly slow bounce, setting up some kind of flag/pullback, that would pretty quickly break to new lows. If that had happened, there was a possibility that we'd see continued legs of selling and the eventual breakdown of trends on higher timeframes. This is a good roadmap for how lower timeframe trends can have an impact on higher timeframes.

Instead, what happened? The market turned around, rocketed higher, and we knew, literally within the space a few days, that this wasn't an environment in which we were likely to find good shorts. Instead of the slow bounce, we got a hard bounce and the market quickly went to new highs. Following the decline, that type of bounce was unusual, but it was a clear message from the market."

what-mightve-been

Read Also: Some Good Things About Crashes by Matt Levine via Bloomberg

4) 99.7% Chance We're In A Bear Market by Myles Udland via Business Insider

"In his latest note to clients, Edwards warns that the recent snapback rallies we've seen in the stock market are merely headfakes and that stocks are probably headed lower.

In his note, Edwards references a model developed by his colleague Andrew Lapthorne, which incorporates macroeconomic and fundamental equity variables, and which currently indicates a 99.7% probability that we are in a bear market."

Edwards-BearMarket-Prob-082715

Also Read: Here's Why The Stock Market Correction Isn't Over Yet by Anora Mahmudova via MarketWatch

But Also Read: Most Top Flight Market Timers Are Bullish by Mark Hulbert via MarketWatch

5) When There Is No Place To Hide by Ben Carlson via A Wealth Of Common Sense

"Some people assume that because nearly all risk assets fall at the same time that markets are becoming more and more intertwined with one another. While I think that globalization and the free flow of information could potentially be speeding up market cycles, risk assets have been highly correlated during stock market corrections for some time now. This is nothing new. Here are the historical numbers that show how different stock markets and market caps have performed during past large losses in the S&P 500:"

Corrections-II1

Read Also: It's Different This Time...But Its Happened Before by Erik Swarts via Market Anthropology


Other Reading

Like 2008 Never Happened by Jeffrey Snider via Alhambra Partners

The Difference Between Traders And Investors by Cam Hui via Humble Student Of The Markets

Timing The Markets With Value And Trend by Meb Faber via Meb Faber Research

Interview With Jim Grant: Market A Hall Of Mirrors via ZeroHedge

Are Central Banks Corrupted? By Paul Craig Roberts via The Economic Populist

Fact vs Fiction: Low Oil Prices And Houston Housing by Arron Layman via Arron Layman.com

A Laugh For A Tough Week

Everyone Who Started Watching MadMoney In 2005 Now Billionaires via The Onion


"You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland, and I show you how deep the rabbit hole goes." - Morpheus, The Matrix

Have a great weekend.

Please, send emails and comments to [email protected] or tweet me.

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