The C-word’s been bandied around a bit – but if a 10 per cent decline from the top is the accepted definition of a market correction, then for a while on Thursday the description could finally be legitimately used, says MarketBeat’s David Gaffen.
Don’t blame those throwing the term ‘correction’ in a tad prematurely though, he adds. It has been more than four years since the last one. In the event, the late rally in US equities meant the S&P closed at 1,411.27, just over 9 per cent off its July peak.
London followed the US’s lead, starting Friday up about 70 points, or 1.1 per cent.
The late US comeback came after an afternoon period of indiscriminate selling that constituted the “fullest representation of all-out panic,” notes Gaffen.
But sick to their stomach, that’s when some traders got right back in. Rob Fraim, from Mid-Atlantic Securities, issued a ‘Vomit Alert.’
“Historically, there has been an amusingly high incidence of success in going long for a trade when my nausea hits a peak,” he wrote. “When I feel like puking on my desk, it might just be time to buy……well, I’m here to tell you that… all kidding aside, I really do feel like throwing up.”
Gaffen quotes Matt McCall, president of Penn Financial Group, who puts it slightly less physiologically: “As much as emotionally I feel I should sell everything, typically when I feel that way we’re much closer to a bottom than the top.”
For Fraim, he has to confess, this is vomit alert number two. But at the time of the first, on July 26, he was merely queasy. This is more serious. The big indices don’t tell the entire story, he says, and there is carnage aplenty under the surface.
Intense market turbulence doesn’t just breed nausea, notes Dealbreaker. It breeds rumours.
So many in fact that, after posting a few early names, they had to pull the plug. Now that is bad.
It’s safe to say that the grapevine is spilling more rumor-wine than it has since we launched this site in the Spring of 2006. More, even, than anytime since the internet stocks popped. Does this rumor bubble indicate that there is a panic, which many will take as a contrarian signal to buy?
Barry Ritzholtz wants us to put panic, emotion, and feelings to one side and look at the facts. Hard numbers will always trump the anecdotal nuggets that there’s “too much negativity out there,” he says.
And Brett Steenbarger, at TraderFeed, has a cautionary word. Don’t just think about the destination; consider the journey. History might tell us the market will end up, but there could be severe “adverse excursion” en route.
Even the best vacation destinations are unappealing if the journey seems unsafe. Perhaps that’s why so many traders end up cutting their winners short, sensing adverse excursions to come.