Blink and you missed it. I am talking about the latest flash mini-correction for stocks. Surely you recall the cruel market correction that started on December 5th and took stocks down 5% in 9 sessions on an intraday basis. Of course if you took last week off you missed the brunt of the selling. In fact Wednesday and Thursday were the first back-to-back 2% rally days for the S&P 500 since March of 2009. By Friday investors had come within a rounding error of a new record and all was forgiven.
It's numerical fact that these V bottoms have become commonplace. I've been talking about them all year and by now Main Street is taking notice as well. As Dana Lyons, partner, at J. Lyons Fund and Yahoo Finance Contributor has noted, we've now had 10 V-bottom sell-offs of more than 3% since early 2013. That's compared to a grand total of 38 in the prior 62 years combined.
What's weird or at the very least noteworthy about the explosion in mini-sell-offs is that barring a hideous last few days 2014 will be the third full calendar year without a market correction of at least 10%. We're nearly 770 trading days away from the correction and near bear market of August 2011. That's the 5th longest run in modern market history.
The whole point of studying the past is to be able to identify the unusual, put it into context and make money. Speaking strictly of price action in stocks, that is to say willfully ignoring all the underlying economic factors, the stand-out characteristics of this tape are the drumbeat of short, sharp sell-offs of about 5% and the lack of any official 10% correction.
Here's a thought: Maybe we've been experiencing corrections all along without noticing it because we're so obsessed with magic numbers like 10%. We've had 3 pullbacks of 5% or more since last summer; a whole bear market worth of dips that didn't get noticed.
Everyone has bull market muscles now that we're back to the highs but there was genuine fear in the tape last week and certainly in October. Stocks moved to stronger hands. That's a big part of the point of market corrections in the first place. The outlying prediction for 2015 is more of the same. If past is prelude that makes a call for no correction in 2015 a decent contrarian bet.
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