Friday , February 26 2021

Market Correction: What You Should Know – Seeking Alpha,

The Market Correction that we have warned about has materialized in an article entitled: Risks Of A Market Correction Significantly Increased . The S&P index initially tried to rally this week, but then reversed and closed deeply in the red. Based on the extreme institutional positioning, even as the markets continued to head higher in late January and February, we were expecting a lower price until the rebalance has happened.

We started warning this when we drew the red line back January.

There’s at least $ billion of selling pressure from institutional re-positioning and another $ billion from hedge funds.

Currently in a “Market Correction”

Both the S&P index ( SPY ) and the Nasdaq index ( QQQ ) are officially in a market correction. A market correction is defined as a (% to) % pullback from the most recent highs. The sell-off can be attributed to a combination of profit taking and protective sell orders. Given the magnitude of the pullback, automated computer algorithms probably had a lot to do with it.

Market corrections are usually violent and scary. Many retail investors panic as they see big losses on their holdings. During such periods, volatility also picks up with sharp downswings and upswings. Currently, the markets are oversold and we could see a bounce.

Should We Sell Everything Now?

No! It’s unlikely that we will see a bear market. We are only in a market correction. Market corrections last on average three to four months and tend to fully recover after another three to four months. So the entire cycle, from day the market corrects until full recovery is six to eight months. The recovery tends to be very swift and sharp, so trying to trade in order to buy lower is not recommended. This time around, the market correction is likely to recover sooner than usual.

Why We Remain Optimistic


The stock market is still in the midst of its longest bull run on record, which began in March out of the ashes of the great financial crisis. The U.S. economy is still on solid footing. The Commerce Department reported that US single-family homes raced to a 50 – year high in January. New home sales jumped 7.9% to an annual rate of , units last month, the highest level since July . The gain in home sales was driven by rising mortgage application volume which rose 1.5% last week from the previous week , according to the Mortgage Bankers Association. Alongside this we also have hit the lowest unemployment rate since 2009.

International investors look at US stocks for safely. The U.S. economy is still considered to be the most resilient, so it makes sense to see smart money flow here.

In fact such massive selloffs are healthy and allow the markets to consolidate. The first step is to accept that corrections are a normal part of any bull market and necessary for the sentiment to re-balance.

Difference Between A “Market Correction” and a “Bear Market”


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