Weekend Review: 11/23/2018

Between 1980 and 2018, the U.S. markets experienced 36 corrections. During this time, the S&P 500 had fallen by an average of 15.6 percent. Ten of these corrections resulted in bear markets, which are generally indicators of economic downturns. The others remained or transitioned back into bull markets which are generally indicators of economic growth and stability.

The average market correction is short-lived and lasts anywhere between three and four months. 

Investopediahttps://www.investopedia.com/terms/c/correction.asp

Using the week ending October 5th as a start date, the general market averages have corrected ~15% across the board with a duration of 2 months.  Should the market continue in corrective mode within its average range and duration, over the next few weeks some stabilization in the underlying structure of stocks should be expected.  Coupled with the next two months having a positive bias it's my perspective to begin focusing on the positives.

Recently the Nasdaq Composite undercut a key pivot low established earlier in this month.  The price action did not look like a capitulation type shakeout which is not unexpected given that it occurred over a holiday shortened week.  With a full week of trading ahead, I'll be observing whether this low is undercut with volume or a second index such as the S&P undercut their pivot low.

COMPQ WEEKLY

SPY WEEKLY

NYSE WEEKLY

IWM WEEKLY

Stocks above their 40-50 period moving averages are extended to levels infrequently witnessed.  

T2018

$NAA50R

$SPXA50R

Stocks decreasingly making new lows across multiple timeframes.

One Month Lows

Three Month Lows

Six Month Lows

$USHL5

Percentage of stocks making moves of 25% over a quarter at 2 year lows.  This correction has clipped stocks across the spectrum leaving few untouched.

Trading Universe Up/Down 25%

The magnitude of downside moves over a six week period has stabilized.

Stocks Down 13%+ Over Six Weeks

Damage to stocks has been sweeping during this correction.  Time will tell if this becomes a full blown bear market for stocks or just a near annual 15% correction over 3 to 4 month period.  To me, when stocks extend breadth to the downside with levels that are rarely seen it is time to begin to accumulate the positives.  Extended breadth to the downside indicates that the balance of probability lay with the upside, but this is not a certainty.  Having a filter of how stocks are expected to act over our time horizon helps confirm alignment. 


My expectation is that at some point a broader number of stocks will show patterns and characteristics that meet my set up criteria, a broader number will begin to populate momentum scans, and a broader number of stocks will move my historical norm over my average holding period.  The market will either confirm this over the next 4 weeks or not.