Corrections Take Time, Be Patient

As I surf the twitter and blog world tonight, I see an unusual number of people claiming a market bottom based on “historical readings” among many of the secondary indicators.

Several of my indicators are also starting to enter those same levels but what many are failing to realize is that the market can take several months to complete a full correction and reach a bottom.

See below for the most recent two year chart with individual corrections for both of the recent bottoms in 2010 and 2011 (highlighted below the 20% figure).

As you can see in 2011, the secondary indicator started to flash “bottom” signals in June but the market didn’t complete its volatile correction until September.

In the summer of 2010, the secondary indicator started to flash “bottom” signals in May but the market didn’t complete its correction until July, two full months of up-and-down action.

The lesson: 2012’s secondary indicators started to FLASH a market bottom last Friday, for the FIRST time. Based on past corrections (going back a decade), this will only be the start of a volatile period of up-and-down action that could last several months (the swings can be greater than 10%). Be Patient!


  1. I totally agree.
    All my indicators are also showing oversold.
    If we look only at the closes, it gives the impression the we are due for a small upward “correction int the correction”
    But when we follow the intraday movements, in the past days, we have them happening for a few hours, after which the indices collapsed again.
    In the morning, analysts find explanations for the up movement, and by the the time it comes out, the markets are already down, and the analyst hurry up to find the event that changes the direction.
    For a while it was “Buy in the morning, sell before the close”.
    Now I think it is the opposite:” short a few hours after the open, cover before the close.”

  2. LG, we could see several up and down swings before this downward correction completes and each of them could be swings of 10% or more. As a longer term trader, I’m on hold right now. I do have open positions but will observe from sideline with 50%+ cash.

  3. I’ve noted that the NHNL and T2107 are approximately where they were on August 03/04 2011 so I’m of the belief there is still much more downside. This being said, I notice in situations like this that there is a tendency to pick the indicator that support the view. If we’re hoping this is the bottom there is an indicator for that and if we believe there is larger down move on the horizon there is an indicator for that too. The value of this post is the consistent use of the same indicators through time married to a general market philosophy to come up with a strategy and plan. These are the market lessons you don’t understand until one day you wake up and do.

  4. And if one isn’t (patient) ..the market teaches them. Thanks

  5. Michael,

    Great comment as I completely agree. My NH-NL indicator is also far from reaching a more historical bottom for a major correction.


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