So, I was wrong. Yesterday, I posted my expectation of a measured move. And it failed. Twice the futures tried to set up a pullback, twice that attempt failed and markets finished red. After exceptional, and never seen before, 3% drop in a row, a 1% selloff now seems like a lukewarm tea for babies. Almost nothing to talk about. Just a few days ago, 1% drop would spark heated debates on social media about crashing markets. Today, nobody cares.

And the markets are setting for another exceptional rare behavior. We had the market falling for five consecutive days. And today’s overnight futures are already down by 1.4%. So, if cash market (SPX) stays down tomorrow, we will have a 6th consecutive down day with no bounce.

The market have seen five consecutive declines without a bounce only twice in its history – in December 2014 and January 2019.

However, the absolute record was 10 consecutive down days which occurred in February 1966. If tomorrow stays red, we will break the 5 day record heading towards 10 days rank.

However, we have approached a 200 day MA and if we stay red tomorrow, we may actually touch it on daily time frame. We may go a bit below it. But, it will be crucial moment. Will the buyers step in and start buying? And if so, will it be a sustainable buying or just a dead cat bounce? We will have to wait and see. So far, in the recent past (at least 2 past years) corrections were always supported by 200 day MA and markets recovered. Let’s see, if this will be the case these days or not.

There are two observations I noticed and find actually funny, if you think about it.

First, the coronavirus issue. Everybody talks about it. Everybody project worse case scenarios, deaths, gloom and doom, cases here and there. But, it seems to me, the coronavirus is not that of an issue (and I do not want to downplay its impact on people). It seems, it is the media, and so called experts on TV shows painting the apocalyptic after-virus world with few human survivals, what makes the matter worse, that it actually is.

At least, we have the memes to laugh at. For example, Trump and Pence going to address the coronavirus and coordinate its handling. Now, we are in big trouble.

The second observation I find funny, is in the same psychological category as the one above. When the markets are running up, everybody is freaking out about it, selling their positions, screaming about high valuation, predicting the end of the world, rigged markets, FED pumping the stocks, fake economy, and who knows what else.

And the markets start finally falling and correcting, these same people are freaking out about it, selling their positions, screaming about crash of the markets (8.3% pullback is not a crash), predicting the end of the world, rigged markets, FED screwing up the markets, fake economy, and who knows what else.

I find it truly funny. All people who claim that they are long time buy and hold investors are buy and hold until the next pullback.

Stay safe out there, save cash for more buying. When this rout ends, it will be a great opportunity to be buying at a huge discount.
 

The selloff we just experienced exceeded all my expectations. I do not remember when I saw the market drop more than 3% in two consecutive days. It was amazing! Well, of course, if you forget, that it was your money on the table in this rout. It is also a never seen move action when the market saw two consecutive days losing over 3%. Never ever in history, this ever happened. What a move!

At the end of the day, the correction settled at 8.1% and VIX as max 29.7 level:

This also makes it the shortest correction deeper than 6% in terms of the losses. If we stop here and start recovering, it would really be the shortest one. If we keep falling, we may see more days of selling.

What can we expect from here?

I expected a bounce from yesterday’s 3.45% selloff. The market bounced up for about 1% (futures) but at the cash open, it lost the steam quickly and sold off. The selling speed gained steam soon and before we knew it the market was down over 3% again. It went as low as 3.4% again and bounced of the lows to finish 3.05% down. Unimaginable!

Will the bounce happen then and where is the bottom of this first wave of selling?

For that, we may use a measured move practice again.

To find a potential bottom where we may expect the market to bounce, we take the market peak and measure the distance to 50 day MA. On the chart (see below) we identified the peak to be 3388 (remember, this is not an exact science, so an approximate number works well too). The 50 day MA level was at 3260. If we subtract the numbers, we get 128 points distance.

Take that number and project it down from the 50 day moving average: 3260 – 128 = 3132. So we may expect the market to drop to approx. 3132 level and see a bounce. Today, the market finished at that exact level (plus / minus).

Thus, I expect a bounce from here, possibly back to 3240 level which was the previous correction low support and also a long term support line. Then we will probably see another wave of selling. I expect it to drop a bit further and touch 200 day MA which, hopefully, will end this correction. From there, we may see a long way to recovery.

Of course, I may be wrong and selling may continue tomorrow and for the rest of the week. If so, it however, will be extremely rare. But again, no matter what happens, this is a great opportunity to be buying great companies at a nice discount.

For my measured move speculation, see the chart below:

Selling never feels good and people have hard time to handle it. It’s their money and they fear them getting lost. They start rushing to protect the value of their portfolio and start selling. Pouring oil into fire.

However, this is not the time for panic and time to start selling. If you knew this was coming, you should have sold three days ago. Today, it is probable too late to be selling. We may be already bottoming this small correction (as on now 6.4% decline). Sure, it may go lower in the next few days. We can correct additional 4%, or 14%. But do you know it? Do you know for sure? I don’t. And I do not ant to speculate. This correction may be in the range of the previous corrections, or it may exceed and go down 20%, or 30%. But given the US economy is relatively strong, a larger than 20% correction would not be justified. And even if it happened, it would be a GREAT opportunity.
 

And recoveries or bounces can be as sharp and fast as the drops. You know that bear markets rallies can be as dangerous as the selling itself. Shorting now may catch you on the wrong side of the market.

And so, when everyone is panicking and selling due to some bogus reason, I decided to add to my portfolio. Lately, I started adding an index to my portfolio in addition to my dividend stocks.

So I added 1 SPY ETF. And if this market keeps sliding lower, I will be adding more shares. I will be adding individual stocks too and selling puts. But, I need to wait a bit for the dust to settle.

Remember, this will pass too.

I keep buying what I have been buying since 2006 and that is high quality dividend growth stocks. If you look at the chart from 1982 to 2000 (that is 18 years long bull market) the market was making new all time highs until 2000 for 18 years. 18 years of all time high market. And that is excluding the previous 10 years from 1972 – 1974 bear market when the market rallied from 1975 to 1982 recovering from the lows and then added additional 18 years of rally and some 900%+ gains.

So, if we look at the history and we see that the exact same pattern happened before (twice) what makes you think that this market cannot rally additional 18 years from the recent breakout in 2013?

See the chart:
 

And here are the cycles I was referring to, indicating easy markets and difficult markets. We just broke out from a difficult market and we will see additional cycle of an easy market. It could be additional 18 years and additional 800%+ gains:

Of course, the rally up was not a straight shot. there were corrections and secondary bear markets (drops by 5% to 20% at times), but overall, the markets went up.

So, knowing this, why would you be panicking about all time high when 90% or so the markets in fact spend time making all time highs?

Apple (AAPL) said that they will not meet the revenue guidance due to Coronavirus and market participants pooped their pants again.

Futures down 0.45% (now recovered a bit to -0.34%). This virus is an old news. Come up with something else.

I do not want to belittle the death of people, but just in the US itself, more people die from a common flu (influenza) than this Coronavirus and no one is freaking out about it, pooping their pants, claiming that companies will not meet their outlooks, and overall global economic slowdown?

This is totally overblown. But, I will gladly take any dip and buy it. Once these idiots realize they are freaking about nothing and chasing themselves back into the market, I will be loaded up.