For the last 7 weeks, that Stock Market has been on a very slow, but steady downward trend. Each week, another 1% of the value of the S&P 500 is lost. Is there an end in sight? Maybe…but then again, maybe not yet.
Here’s a little known fact about corrections. Market corrections occur every 160 days. Normally, Market corrections are 10% in nature, but we have not seen a full 10% correction in over 241 trading days. In 2010, the summer doldrums actually brought a 13% correction. So a 10% for 2011 is expected.
The high for the 2011 S&P 500 is 12,807. If there were to be a full 10% correction, then that would take the S&P to 11,526. Right now, the S&P is at 11,934. So realistically there could be another 400 points drop before the S&P hits bottom. If it were to drop 1% a week, then it would be another 4 weeks of downward pressure on the S&P 500. This is the end of June, that would bring it to the end of July, 2011. To date for 2011, we are seeing about a 7% correction.
Looking at the 2010 chart, the low for 2010 was July 6,2010, at 9,743, right before the July 4th weekend. We are now approaching July 2011 and the July 4th weekend. We know that earnings season kicks off on the week after July 4th. So that might bring the Market back up at that time, mirror imaging what happened in 2010.
So when will the correction be over? Hmmm….good question. Unlike 2010, there are some additional factors that must be considered. First, the end of QE2 in June. Does this mean that banks will no longer have the liquidity they had before? Given that they have not been lending to small businesses and have significantly tightened their lending policies for both small businesses and mortgages, the end of QE2 may not bring more downward pressure to the Market. The Market by now has probably already priced in QE2’s end.
How about Greece defaulting? While Europe is still not out of the woods, more than likely Greece will agree to its austerity plan and get its second round of funding. Will other Europeans countries have the same situations and put downward pressure on the Markets? Perhaps, but probably not right away.
And what about the debt ceiling for the US? Great for finger pointing, he said / she said, between the would be Republican presidential candidates (of which there must be dozens at this point) and the Democratic administration. But the reality is, the debt ceiling will be raised and there will be no default on US bonds. Magically, a compromise will be reached.
So, all in all, we should see the Market begin to climb again when Alcoa reports its earnings. That should begin to take us out of summer doldrums. Just remember, the S&P 500 started the year at 11,670. As of now, the S&P 500 is at 11,934. That’s about a 3% gain for the year. Brokerages can’t give good bonuses in December with just a 3% S&P increase. They have to at least pay lip service to tying their bonuses to achievements. All we can say is “Get Real” or as the tennis players in Wimbledon say “Come On”, as they fist pump their way to victory. The Market will come back up. The summer doldrums will be over. The Market will gain back the 7% by the end of the year so bonuses can be awarded appropriately. In 2010, executives increased their bonuses by 23%. Surely they want to repeat that activity in 2011!
So start trading emini futures. You can be night trading or day trading while you wait for the market to come back up. At least with futures trading, you can short.
Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to email@example.com or call 866-617-2037 today.