WHEN COMES THE 10% CORRECTION?

Honestly, I don’t have a faintest idea. But... there are some remarkable statistical datas which we can use for analyzing the current market situation. The trader’s Bible says in each 30 month needs to come a correction which is bigger than 10%. Let’s check it out a bit. Is it a correct observation or just a kind of urban legend. I mean „market legend”.

The markets have been massively soaring for more than 530 trading days without any double digit correction. This period has with us for more than 2 years now, since August 2011. Still the optimism around the floor is rising. Between 2003 and 2007 the SP500 didn’t tumble with double digit neither. But that rally lasted for 1153 trading days. There is another longer no correction period between 1990-1997 for 1767 trading days. So this 530 days is not unusual at all.

I know it seems for every one this rally is too strong and long but in bigger view it is not extreme at all. It is only an observation bias. If something seems long enough is not a reason for the correction will come. In other words if the bulls are really strong doesn’t matter what we beleive or what is our expectation. Because Mr. Market loves to do the unexpected things.

Fundamentally I would place one question. Why we scared about huge correction if the US GDP data +2,8% shows the US economy is in perfect condition. And the interest rate is at historical low. These two conditions can be enough argument being bullish for me. And if against all these good macro factors the market finally decide to drop, still there is the FED QE program which can soften the noise of correction.

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The BFM Assets Team.