The Inevitable 10% Correction

[brewer12345]

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]

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?

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]

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]

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]

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]

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]

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]

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]

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.

 

[Fermion]

An Ebola outbreak in 5 or 6 states by non healthcare workers might trigger a more than 10% correction.

 

[2B]

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.

Many of the shale oil operators are small and highly leveraged. It won't take much to kill off a bunch of them. The oil will still be there and just as readily available. Better capitalized companies not expecting as large of a return will take over. This will take a little while which may be all the Saudis are after.

My company depends heavily on the oil industry so the price of oil gets people talking in the halls. The falling oil prices have killed off most of the deep water platforms under evaluation. Some that had started have been put on hold. There is starting to be talk in the Upstream group about RIFs. It's actually looking pretty likely.

Not that I really care at this point other than making it to January, I am in the Downstream group (refinery, chemicals) which would typically get busier with cheaper feed stocks but the reduced demand makes project work in these areas less plentiful. I may not have a OMY opportunity even if I wanted it. I would certainly volunteer to be sent off so I could get unemployment for as long as I could milk it.

 

[easysurfer]

I am [-]stubbornly[/-] sticking to my plan of rebalancing only once a year.

Thus, I don't plan on making any moves until 1/2/2015.

Gotta practice what I preach (I hope ).

 

[brewer12345]

The laughable thing is that even as everyone is selling and running around with their hair on fire, unemployment claims just came in at a 14 year low, industrial production spiked, and capacity utilization is now at 79.3% - just a hair shy of the 80% and up level that typically starts sparking heavy capex spending. Sounds terrible, doesn't it?

 

[REWahoo]

Sounds terrible, doesn't it?

Yep, we're doomed!

 

[brewer12345]

Many of the shale oil operators are small and highly leveraged. It won't take much to kill off a bunch of them. The oil will still be there and just as readily available. Better capitalized companies not expecting as large of a return will take over. This will take a little while which may be all the Saudis are after.

A possibility. The question mark for me is how long the Saudis can withstand lower prices before it starts to undermine their ability to keep their oppressed population sweet with lots of domestic spending. I have a funny feeling that within 6 months we will see oil prices back over $90/bbl. If ISIS gets completely out of hand, the Saudi border is pretty close to where they are now. Oil prices could become sensitized to political events again.

In the meantime, lower oil prices are a stimulant to the US economy and poison to Putin's ambitions. If he thought the sanctions would not matter, taking away the oil earnings that Russia was counting on will put paid to that.

 

[audreyh1]

An Ebola outbreak in 5 or 6 states by non healthcare workers might trigger a more than 10% correction.

For sure. You could wait for that.

 

[audreyh1]

Many of the shale oil operators are small and highly leveraged. It won't take much to kill off a bunch of them. The oil will still be there and just as readily available. Better capitalized companies not expecting as large of a return will take over. This will take a little while which may be all the Saudis are after.

My company depends heavily on the oil industry so the price of oil gets people talking in the halls. The falling oil prices have killed off most of the deep water platforms under evaluation. Some that had started have been put on hold. There is starting to be talk in the Upstream group about RIFs. It's actually looking pretty likely.

Not that I really care at this point other than making it to January, I am in the Downstream group (refinery, chemicals) which would typically get busier with cheaper feed stocks but the reduced demand makes project work in these areas less plentiful. I may not have a OMY opportunity even if I wanted it. I would certainly volunteer to be sent off so I could get unemployment for as long as I could milk it.

I never understood how oil was managing to stay so high during the first half of the year.

 

[2B]

I never understood how oil was managing to stay so high during the first half of the year.

My guess (and that's all it is) is that speculators were hedging against a major geopolitical event. It turns out a sagging economy in Europe and a continuing less than robust one in the US trumps that.

 

[project2501]

S&P not quite 10%(1817) but close enough for me. Been waiting for this over 6mo

Either making changes end of today for tomorrows opening or maybe Friday since it may just end in the red for the week. Good prices out there, buy what you can while it's cheap.

I bought some additional shares of stocks already in the portfolio on the way down last week, but wasn't sure it would head to correction territory. Whoot!