Capitalogix

What Level of Market Correction Is Normal Historically? [Chart]

There's always some pain to endure.

This chart shows S&P 500 intra-year declines compared with calendar year returns. The bars represent year-end returns since 1980, while the purple dots mark each year's market low.

Buy and Hold investors must stomach significant drawdowns to get their returns — even in 'good' years.

 

via JP Morgan Funds.

 

Basically, you have to understand that 10-15% pull-backs are normal (perhaps even healthy) for the market.

According to Business Insider, here are market correction averages and their historic frequency. Since 1900, we've seen:

• 5% market corrections: 3x per year.
• 10% market corrections: Once per year.
• 20% market corrections: Once every 3.5 years..

Interesting.

Here Are Some Links to Start Your Week

Trading pros may not think things are different.  However, the public is reacting to suggestions that Wall Streets may be rigged against them.

 

In this cartoon, Darkow draws the Carnival Midway Game of Wall Street, "Spill the Milk" ... which disguises the super-fast high-frequency stock trading center for insiders only.

The Carny beckons to the 'Little Guy': "Step right up, friend... It's a game of skill. Trust Me!".

This kind of public sentiment often triggers regulatory scrutiny ... which, in turn, triggers new games of 'skill'.

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The Science of Making Your Story Memorable - Scott Adams. (Dilbert)
• 45 People Share the Best Piece Of Advice They’ve Ever Heard. (Thought Catalog)
• The Best April Fools’ Pranks of 2014. (TechCrunch)
• Meet The Seven People Who Hold The Keys To Worldwide Internet Security. (The Guardian)
• Chicago Police Department Believes It Can See The Future, Starts Warning Citizens About Crimes They Might Commit. (TechDirt)

 

Trading Links:

• Will Last Year's Winners Be This Year's Losers? (BlackRock)
• Goldman Sachs Chief: The Responsible Way to Rein in Super-Fast Trading. (WSJ)
• Themis Trading Response To Goldman Sachs Market Structure Op-ed. (ThemisTrading)
• Technical Analysis Practice: Contrast between Individuals and Professionals. (DragonflyCap)
• Scott Adams Blog: Robot Geniuses are Coming. (Dilbert)

Weekly Market Winners and Losers Performance Comparison

Even during a week like this one, there is always something working ... if you look in the right places.

The chart shows the top-and-bottom performing markets, ranked by weekly performance.

The data is color coded based on sector. The first column shows last week's performance, followed by six columns of the most recent weekly market performances.

 

Click this link to view weekly, monthly, quarterly, and yearly views of this data.

So, how does that compare to other markets around the world? Here is an interactive chart to answer that question.

Here Are Some Links to Start Your Week

Just got back from a quick trip to New York City.  While there, I got interviewed at the Market Technicians Association annual meeting.
 

 
For what it is worth, the prevailing sentiment there was quite bullish (though most were expecting a pull-back, or correction, soon).

On a side note, I took advantage of the proximity to the Carnegie Deli.
 

 
I only ate half, but didn't want to waste any ... so I had it wrapped, and took it home.

Long story short, even if it doesn't smell bad, you shouldn't eat corned beef that was left unrefrigerated for more than a day.

I lost seven pounds yesterday! 

I'd be an idiot savant if I were good at something enough to be a savant.

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• 'Impossible' Is Outdated - Here's Why. (Forbes)
• The Dawn of the Age of Artificial Intelligence. (The Atlantic)
• A Day Later, Caffeine Stimulates Memory. (Futurity)
• Japan's Booming Sex Niche ... Elder Porn -. (TIME)
• The Big Bang of Older TV Viewers. Now that the median TV viewer is 54, networks are reworking lineups and rethinking ad strategies. (LATimes)

 

Trading Links:

• A Group of Investors is Buying a Stake in the Next Generation of Geniuses. (BusinessInsider)
• All Time Top 10 Hedge Fund Managers | The Big Picture. (Ritholtz)
• 5 Ways China’s Slowdown Will Ripple Across Globe. (AsianCorrespondent)
• What Happens When The Whole World Is Wired? (FastCo)
• The Future of Jobs. Tech innovation has increased long-run employment. Can things change? The Economist (Economist)

Is the U.S. Stock Market Rigged?

Did you see the 60 Minutes report on Michael Lewis' new book, "Flash Boys," that reveals some of the ways that high speed traders work the stock market to their advantage.

 

 

Here is an excerpt from the intro.

 

Steve Kroft: What’s the headline here?

Michael Lewis: The Stock Market is rigged. The United States stock market, the most iconic market in global capitalism is rigged.

Steve Kroft: By whom?

Michael Lewis: By a combination of these stock exchanges, the big Wall Street banks and high-frequency traders.

Steve Kroft: Who are the victims?

Michael Lewis: Everybody who has an investment in the stock market.

 

The 60 Minutes piece has a interesting explanation of what is happening.

For an even better one, click to watch this Michael Lewis interview on Bloomberg, where he defends his claim that the market is rigged.

 

 

via Bloomberg Television's “Market Makers.”

 

Let me know if you want to talk about high frequency trading or what is likely to happen as a result of press coverage like this and the ensuing regulatory scrutiny.

 

We live in interesting times.

 

Related articles

Michael Lewis Explains How HFTs "Screw" Investors Every Day.

Big Picture - More Videos: On how the U.S. stock market is rigged?

Wall Street Pit: On How 'Rigged' The Stock Market Really Is

How a Few Poorly-Timed Trades Can Wreck Decades of Healthy Returns

Few investors are good at swing trading — meaning, they're not good at predicting short-term swings in the market.

 

Recently, BusinessInsider observed that more often than not, investors find themselves buying high and selling low. And when the market starts selling off sharply, investors will panic, sell their own shares, and sit on the sidelines.

 

Here is a great way to visualize that.

 

 

via BehaviorGap.

 

Unfortunately, some of the biggest one-day upswings in the market occur during these "tough to trade" volatile periods.

 

In its 2014 Guide to Retirement, JP Morgan Asset Management illustrates what can happen to investor returns when they miss out on these good days.

 

 

 

 

via BusinessInsider.

For instance, if an investor stayed fully invested in the S&P 500 from 1993 to 2013, they would've had a 9.2% annualized return.

 

However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 5.4%.

 

In this trading methodology, missing 'big win' days does so much damage because those missed gains aren't able to compound during the rest of the investment holding period.

 

Here Are Some Links to Start Your Week

First they will laugh ... Then they will copy.

 

 

Don't give up. 

"Many of life's failures are people who did not realize how close they were to success when they gave up."   ~  Thomas A. Edison

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Do Entrepreneurs Have an Optimism Bias -- Or Do You Have a Pessimism Bias? (HBR)
• Why Positive Encouragement Works Better Than Criticism, According to Science. (Buffer)
• 'Hey Dumbass, Say Something Nice to Your Wife' — There's an App for That. (Mashable)
• 21 Awkward Cards For Your Confusing Modern Relationships. (HuffingtonPost)
• You'll Be Surprised How Many Donuts worth of Sugar Are in These 10 Everyday Foods. (BI)
  
  

 

Trading Links:

• That Viral Chart Predicting Another 1929 Stock-Market Crash? It's Absurd. (The Atlantic)
• This Good News Might Actually Be Bad News: Americans Are Borrowing Big Again. (Quartz)
• Do Stress Hormones Fuel Volatility In Financial Markets? (LATimes)
• The Average Successful Startup Raises $41M, Exits at $242.9M. (TechCrunch)
• Accidental Tax Break Saves Wealthiest Americans $100 Billion. (Yahoo Finance)

This is What a Bull Market Feels Like

Were you surprised how quickly Markets digested the risk of Russia and the Ukraine?

It's not the news ... it's what markets do after the news hits.  In Bear Markets, markets are looking for excuses to pull-back and take risk off the table.  In Bull Markets, things can advance, even with uncertainty. 

The New York Stock Exchange publishes end-of-month data for margin debt.  Historically, surging peaks of margin debt often happen before big market pull-backs.

The chart, below, shows the relationship between margin debt and the market (using the S&P 500 as the proxy for the market). Even adjusted for inflation, the latest data puts margin debt as at an all-time high.

 

 via Doug Short.

Victor Sperandeo advised speculators to ride the false train of hope as far as possible and jump off just before it falls into the abyss.

Good luck.

 

Here Are Some Links to Start Your Week

Are the Olympics over yet?  No?  Here are some worthwile momements, in case you missed them.

For example, here, a woman tried to snap a picture of the hockey game between Russia and Slovenia — but instead she got an eyeful.  Call it a new form of 'Selfie'.

 

 

And here's one the Wide World of Sports would call the "Thrill of Victory and the Agony of Defeat".

 

 

For more Olympic pictures, click here.

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Why Big Data Might Be More About Automation Than Insights. (GigaOM)
• Better Than Human: Why Robots Will — And Must — Take Our Jobs. (Wired)
• Why Are We Here? Evolution’s Dirty Secrets. (Salon)
• How Roommates Replaced Spouses in the 20th Century. (The Atlantic)
• Debunking the Myth of the 10,000-Hours Rule: What It Actually Takes to Reach Genius-Level Excellence. (Brain Pickings)

 

Trading Links:

• FED: "Lower Rates Don't Induce Investment." Wasn't That a Central Tenet of Monetary Policy? (BI)
• Are Trading and Gambling the Same? (FuturesMag)
• Statistics Done Wrong: A Guide to Common Analysis Mistakes. (Online)
• IBM Announces $1B Watson Group, Moves Jeopardy Ace Computer To NYC. (Forbes)
• DeathWatch 2014 - Companies on the edge of irrelevance. These five companies won’t die, but they may not escape 2014 in one piece. (ArsTechnica)

Analysts Discuss Whether the U.S. Will Still Be the #1 Global Economy in 25 Years

Investors often want a peek at the global future.

Here is a comilation of views from global experts.  They consider things like whether the U.S. will still be the one of the top global economies in 25 years ... and who else will share that stage?

Here is the video from CNBC.

 

 

For more on this, here is an interview with George Friedman.

Related articles

CEOs see economic glass as half-full

IMF raises outlook for global and US economies

Economic growth picks up across Europe