The Inevitable 10% Correction

[jebmke]

Quote:

Originally Posted by 2B My Vanguard CFP recommended I increase my equities allocation from 40 to 60%.

Why?

When I used VG planner, I gave him the target allocation.

[macav933]

Just sat down with my adviser yesterday....first question out of her month was "how do you feel about the market"....my current allocation is 51% equity's with a goal of 55% given I'm still working PT at age 56. Plan to dollar cost average about $120K in cash into stocks starting in Feb. Maybe things will shake out in the meantime. Way to young to not see this as anything other than a buying opportunity!

[clifp]

I am still in state of mild shock. How did Dow end up down 175 the S&P down 15, and my portfolio end up a $1,000?

Analyzing it, all of my interest sensitive MLP had significant rallies as did the Vanguard Small Cap index fund. I do wonder if the small cap having a up day, in the middle of carnage is sign the end of the correction?

[foxfirev5]

Getting closer to a rebalance point. However at this stage of the game it will be a gradual rebalance into equities if the slide continues. Basically repurchasing what I sold off at S&P 1875 - 2000 to keep under my 45% equity cap.

[NW-Bound]

Quote:

Originally Posted by clifp I am still in state of mild shock. How did Dow end up down 175 the S&P down 15, and my portfolio end up a $1,000? Analyzing it, all of my interest sensitive MLP had significant rallies as did the Vanguard Small Cap index fund. I do wonder if the small cap having a up day, in the middle of carnage is sign the end of the correction?

I am shocked too. Have you looked into becoming a hedge fund manager?

[brewer12345]

Quote:

Originally Posted by clifp I do wonder if the small cap having a up day, in the middle of carnage is sign the end of the correction?

Hard to say, although it suggests that there is a bid for beaten down stuff. High yield spreads continued to rise today, although the absolute level they are sitting at is still modest.

[NW-Bound]

Quote:

Originally Posted by clifp I am still in state of mild shock. How did Dow end up down 175 the S&P down 15, and my portfolio end up a $1,000? Analyzing it, all of my interest sensitive MLP had significant rallies as did the Vanguard Small Cap index fund. I do wonder if the small cap having a up day, in the middle of carnage is sign the end of the correction?

Quote:

Originally Posted by NW-Bound I am shocked too. Have you looked into becoming a hedge fund manager?

I just looked at my own portfolio. My stocks are down -0.03% today, compared to -1.06% for the Dow and -0.81% for S&P.

Many of my beaten stocks were gaining, evidence of some bargain hunting. Or is it a dead cat bounce?

[donheff]

Darn. I didn't realize we were at the 10% level already. May have missed my opportunity. I was thinking year to date rather than from this year's peak.

[RAE]

Quote:

Originally Posted by donheff Darn. I didn't realize we were at the 10% level already. May have missed my opportunity. I was thinking year to date rather than from this year's peak.

Asia and Europe down again overnight, and US futures down also. I don't think you've missed your opportunity.

[2B]

Quote:

Originally Posted by jebmke Why? When I used VG planner, I gave him the target allocation.

Vanguard has their formula when you are willing to let them recommend them. They also will recommend Total Stock Market and Total International as the equity funds. The Total Bond Market is their bond recommendation with 20% in Total International Bond Market.

That "achieves" average market performance. No sector is over/under weighted.

[frayne]

Don't you think with the Ebola scare, ISIS uncertainty, slower global growth rate forecast, the market was bound to take a hit ?

[audreyh1]

Quote:

Originally Posted by frayne Don't you think with the Ebola scare, ISIS uncertainty, slower global growth rate forecast, the market was bound to take a hit ?

The ISIS uncertainty and slow global rate forecast has been around for a while and the markets have rallied. The Ebola contagion escaping African continent is new and yes a market hit is expected, like it has in other contagion scares like SARS. But don't discount other sues like oil prices plummeting.

[frayne]

Are oil prices falling because of a glut due to lower consumption or over production or a combination of the two, and isn't that a good thing for the world economy ? Lower transportation costs and more discretionary income for people to spend ? Granted the ISIS story has been around but with the recent knowledge that bombing hasn't really slowed them down and they continue to take ground, I think raises a bit more concern about the Mideast situation. Not to mention the fact of the administration sending mixed signals ie, Turkey allowing the US use of their basis, only to find out they aren't. Not to get political but it seems to many the US ship of state is rudderless at this moment in time, which in turn doesn't help send a calming message to the markets.

[MichaelB]

Politics and investing are like oil and water .. they don't mix well.

[Senator]

The only thing that makes markets go up is buyers. The only thing that makes it go down are sellers.

When everyone has purchased what they want, some buyers become sellers. After all, everyone has already bought.

Once a certain level is reached, sellers become more numerous and there are less buyers. Look at your own possessions, is anything not for sale?

So, we are in a time frame where the sellers outnumber the buyers. That will change soon enough, unless no more buyers come into the market. They always have, and for anyone that uses FireCalc, they better.

This is where traders get slaughtered. Traders that are not good see the momentum and jump in too late. And they wait for downward momentum before jumping out.

Great traders jump in and out at predetermined levels as determined by charts and numbers. They make a little money, a lot of times.

[REWahoo]

Quote:

Originally Posted by frayne Are oil prices falling because of a glut due to lower consumption or over production or a combination of the two...

Here's an interesting take by oil economist Phil Verleger on the reason for the dramatic drop in oil prices:

Publications - Notes at the Margin

His article suggests the decline is actually a price war led by OPEC (Saudi Arabia) to squeeze out high cost producers and regain market share.

[audreyh1]

Quote:

Originally Posted by frayne Are oil prices falling because of a glut due to lower consumption or over production or a combination of the two, and isn't that a good thing for the world economy ? Lower transportation costs and more discretionary income for people to spend ? Granted the ISIS story has been around but with the recent knowledge that bombing hasn't really slowed them down and they continue to take ground, I think raises a bit more concern about the Mideast situation. Not to mention the fact of the administration sending mixed signals ie, Turkey allowing the US use of their basis, only to find out they aren't. Not to get political but it seems to many the US ship of state is rudderless at this moment in time, which in turn doesn't help send a calming message to the markets.

Yes, falling oil prices (due to a glut from overproduction) are good for consumers and the economy. But in the short run they hurt the traders/financial institutions/companies counting on high prices to continue, and these folks have to unwind their positions which roils the markets and freaks everyone out.

Having government at a standoff has been going on for YEARS so that is not new. Nothing geo-political is new - various flare ups have happened several times a year, every year, during the entire rally since 2009. I think it's just when new things happen (Ebola spread, hedge funds bailing due to oil price drop) that people pay more attentions to all the other things too, as if they've just been discovered.

Don't expect markets to be logical.

[Fermion]

I paid off our house earlier this year with covered call selling (sold 2016 calls against some indexes and stocks).

I guess that was a bit of market timing but this near 10% correction has me thinking about buying back the calls or buying more of the index. With no mortgage payment I have quite a bit of cash piled up.

Maybe wait for 20% correction.

[audreyh1]

Quote:

Originally Posted by REWahoo Here's an interesting take by oil economist Phil Verleger on the reason for the dramatic drop in oil prices: Publications - Notes at the Margin His article suggests the decline is actually a price war led by OPEC (Saudi Arabia) to squeeze out high cost producers and regain market share.

It's like they just woke up and realized that the US was seriously gaining energy independence and decided they had better do something to shut down our new drilling industry?

[audreyh1]

Quote:

Originally Posted by Fermion I paid off our house earlier this year with covered call selling (sold 2016 calls against some indexes and stocks). I guess that was a bit of market timing but this near 10% correction has me thinking about buying back the calls or buying more of the index. With no mortgage payment I have quite a bit of cash piled up. Maybe wait for 20% correction.

A 10% or more correction can happen at any time for no reason at all, other than it was maybe "due" or whatever. A 20% sell off is not a correction, but a bear market and usually doesn't happen unless there is an economic contraction/recession. You are best off setting up an averaging in program to reach your desired AA.