You Call This A Correction?

We've seen a lot of commentary in the last 24 hours suggesting that the market's "correction" over the last few days is nearing its end.  However, if we apply our standard definition of a market correction (10% decline from a peak) to the last few days we find that some of the major indices still may have a ways to go to have a "real" correction.

Comments

[x]

How about a left field prediction. 800-880 on the S&P before we are done. Now, that's a correction! Bottom in 4Q 06 or 07. You pick'em.

[Babak]

But why would you want to apply the "standard definition of a market correction (10% decline from a peak)"?

Why not look at the internal technical indicators and other measures to get a feel for the market?

Or does that require too much work?

[Bruce Smitham]

When investors realize that there is so much cash out there, quality stocks, will shine. The shorts are having a lot of fun at the expense of serious long term investors. This correction is not like 2000-2002. There's nothing to fear. Quality stocks are the investment vehicles to be. The speculator shorts need to have their heads handed to them. We do that by not selling.

[x]

Quality stocks? Earnings the most "cyclical" in fifty years? Meteoric rises in base commodities that are more parabolic than tech in 2000? Dividend yields at the low end of norms for the last 100 years? Valuations, that by some measurements are only exceeded by 2000 levels in the past 25 years. (Coincident with 1987 value levels.) Consumer stocks cratering? Russia up 300% in a year. Many emerging markets of similar rises over this cycle. Oh, and they also suffer from extremes in "cyclical" earnings.

So, liquidity, huh? You think liquidity will chase equities to what level? Stocks are not cheap. Nor are hard assets. Nor are emerging markets. Nor is real estate. Stick your head in the sand and buy some more on these declines. But, before you do that, you had better resurrect the consumer stocks that are cratering.

My work shows significant distribution by the Generals. We need to finish the 2000 mess before we start the next bull market.

[ss]

Memo to perma bears....equities are 25% undervalued to bonds.

[x]

Memo to perma bulls....I'm a perma bull on America's future and smart enough to be neither a perma bear or perma bull when it comes to investing because neither are ever right.

May I ask what model you are using to evaluate equities versus bonds? Would that be the perma bull model? lol.

[ss]

It's commonly called the Fed Model...comparing the 10 yr yield to the forward earnings yield of the S&P500. This model said short stocks, buy bonds in 2000...
Ya gig?

[muckdog]

We've had a 3 year bull market with barely a pullback. We're due. I'm just waiting for the market to find a bottom and then grind sideways for a few months to frustrate everyone. Burn off some of the complacency that's built up.

[x]

If you are using the Fed model and doing so on forward earnings, you are a brave individual. i guess you can predict the future? you know, in 2000, when the economy was growing at nearly 5%, you could have applied the same basic reciprocal of earnings and the market surely looked cheap(er). The only problem was GDP fell off of a cliff and so did earnings.

It's a little more realistic to compare ten year or 3 month bond yields to trailing twelve month earnings. And given you don't know where the Fed is going, nor can you predict the future, I'd likely take the counter gamble plus the spread in Vegas.

I know it is nearly rocket science and most people have a hard time comprehending such a complicated use of the english language but "dom't fight the Fed".

[ss]

With respect, you don't understand the Fed Model. In 2000 bonds were yielding ~ 7%, while stocks were (earnings) yielding ~ 4% !! Today bonds are yielding ~5% and stocks are ~ 7.08%. Which sounds better to you?

[x]

that's an interesting statement. funny how someone through a computer can divine my understanding of the fed model. you must be really smart. i should listen to you and invest all of my capital in equities here because you are so smart. unlike you, i can't divine anything through a computer so i don't know if you have an iq of 8 or 180. but, i can assure you i understand the fed model extremely well. it's a first grade math calculation. i'm not sure i could solve differential equations with boundary problems but my mommy did teach me to punch the 1/x button on my wal-mart calculator.

i never said the fed model said stocks were cheap in 2000 now did i? but, again, your superior intellect divined it. wow, i am so impressed. should i buy copper futures at $4 a pound? that is the asset class leading the equity markets. i want to buy a leader. please grant me a wish of your advice. I'll gladly pay you Tuesday for a hamburger today.

[ss]

"you know, in 2000, when the economy was growing at nearly 5%, you could have applied the same basic reciprocal of earnings and the market surely looked cheap(er)."

"i never said the fed model said stocks were cheap in 2000 now did i? but, again, your superior intellect divined it. "

Huh? The model IS saying what IT is saying...feel free to argue otherwise. Good luck...over and out.

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