Fastest S&P 500 Correction Since 1928?

According to Yardeni Research there has been 52 -10% corrections in the S&P 500 since 1928.  If February 8th, 2018 was indeed the low of the latest -10% correction it would be the fastest correction of that entire data set.

Source: Yardeni Research

The median duration of the corrections in that data set is 119 days.  So if  instead the end of the correction from January 26th, 2018 bottomed at the median duration date we wouldn’t see a bottom until May 25th, 2018.

More than -20% corrections in the stock market are special events, they occur much less frequently than corrections less than -20%.  So in general the market has done a good job so far during this correction correcting in price, but hasn’t corrected in duration for very long compared to past corrections.  And based on past data, unless we just set a record, a lower low is in the cards.

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The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

 

Mark Minervini On Staying Patient And Waiting For The Market To Come To You

Mark Minervini has written three fantastic trading books that I highly recommend.  I’ve been going back through the last two chapters in Trade Like A Stock Market Wizard and found a few passages that highlight some of the things I’ve been talking about recently:  raising cash when the market gets unstable and only trading when proper setups show up.

“Undisciplined players looking for “action” always show up at the poker tables.  The stock market is no different except that most stock market investors are even less disciplined than most poker players.  The Achilles’ heel of most gamblers and speculators is the desire to play every hand, a common human weakness that allows impatience to override good judgment.”

One concept that new traders have a hard time with (I know I did before I gained experience) is knowing when to turn it off.  Especially when you have a good winning streak the natural inclination is to want to keep it going and even increase your activity and position size.  The problem though is the market goes back and forth between trending and consolidating and moving sideways.  In the choppy periods a trend following approach like Stage Analysis can get chopped up, and a string of losses can occur if you try and trade sub-optimal setups instead of patiently waiting for the next big opportunity.

“In the stock market, you have the luxury of being able to stay on the sidelines, free of charge, observing and waiting for the most opportune moment to wager.  You get to see the market’s “cards” before you bet, free of charge.  This is a wonderful advantage, yet few exploit it.”

This is exactly the idea of waiting until you see the Stage 2 breakout show up in the charts, and then pouncing on it.  If you don’t see any good potential Stage 2 breakouts or continuation buys, then there’s nothing to do.  It’s as simple as that.

And if you get upset about missing a trade, don’t because another trade will setup at some point in the future, probably sooner than you think.  The worst thing you can do is chase a trade you missed and then have that capital tied up in a potential loss while another good opportunity shows up.

“You don’t have to involve yourself in every market movement. In fact, you should not attempt to. Be an exacting opportunist.  Be selective and pick your entry spots very carefully.  Wait until the probabilities are stacked in your favor before you act.  With patience and discipline, you can profit from market opponents who are less disciplined and less capable than you are.  While you do nothing, less skilled opponents are laying the groundwork for your success, and you get to wait and watch for free.  What a deal!”

We know in Stage Analysis that the Stage 1 bases and Stage 3 tops lay the groundwork for the next up or down trending move in the markets.  If you find yourself buying too early in Stage 1 before a real breakout occurs you are doing what Minervini is talking about in the final quote above.  The probabilities are not in your favor until you remain patient and wait for the ideal buy point.

I highly recommend all three of Mark Minervini’s books.  I find myself going back through them from time to time since there’s a lot of good material in them covering all aspects of trading.

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

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Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

Jesse Livermore On Going To Cash And Taking A Break From The Markets

Here’s some quotes from Jesse Livermore that I think hit some key points on why being in the market 100% of the time is a bad idea:

“First, do not be invested in the market all the time. There are many times when I have been completely in cash, especially when I was unsure of the direction of the market and waiting for a confirmation of the next move….Second, it is the change in the major trend that hurts most speculators.”

From a Stage Analysis perspective if you see no sectors leading the market and few leading stocks breaking out of Stage 1 bases on explosive volume, why be in the market?  If you’re in the market at that point you are more in there for action than taking proper trading setups.  And changes in trend, especially choppy sideways consolidations, can cost a lot of profits and confidence if you try and fight your way through them.

“Always remember; you can win a horse race, but you can’t beat the races. You can win on a stock, but you cannot beat Wall Street all the time. Nobody can.”

If the market went straight up all the time then it would be easy to beat it 100% of the time by buying the best stocks.  But unfortunately we get either sideways periods or downward movements in stock prices.  Its better to try and win the races that give you proper setups, not every race no matter the setup.

“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”

Bear markets (Stage 4) and sideways consolidations (Stage 1) lay the foundation for powerful advances (Stage 2).  By letting Stage 4 and Stage 1 take place, you let the market pave the way for the time to capitalize on Stage 2.

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

Checkout my trading videos on Youtube

Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.