INVESTORS MAY FINALLY BE GETTING PAST the denial stage that the stock market is going through just another "midcycle" correction. From the continuing barrage of bad economic news to the simple technical fact that the market's trend is down, significant damage is being done. And it will take quite a bit of time to repair that damage before we can even think of getting back to the highs of last autumn.
There are several reasons why the stock market is not just correcting but actually in a declining trend. But in the short term, it may be time for the bears to take a slight rest before making their next push lower. Markets rarely move in a straight line without a pause or reversal, however brief.
On clue to the market's bearish state is the nontechnical observation that it had good reasons to bounce last week following a steep decline, but failed to do so. If the lower stock prices had indeed created value for investors, as some pundits asserted, then the broad market should have found some buyers. It didn't.
Getting back to technical theory, strong markets do not linger at support levels reached during corrections....MOREMeanwhile, from the Wall Street Journal:
Be Careful Buying
Wall Street, as measured by the broad Standard & Poor's 500-stock index, has now fallen about 12% from its peak -- the record level reached just last October.
Many investors assume a stock market "correction" of 10% or more is automatically a great buying opportunity. But that's really a view we've inherited from the big bull market of the 1980s and 1990s.
To get a longer perspective, I looked at all 10% stock-market corrections going back to 1950. I found 20, including the current one. (Yes, they are surprisingly common.)
The big lesson? They don't always pay off as well as you'd hope. In fact, Wall Street on average rose less in the five years following such a correction than it did at other times....MORE