Over the past few years, I would estimate that approximately 90% of small sell-offs turned into a buying opportunity. Very few experienced a correction of more than 7%, and even those reversed rather quickly as stocks ran to make new highs fueled by Quantitative Easing (QE).
Well, guess what? QE is over. World banks are shooting their last few bullets around the globe in an attempt to help a weak global economy. I am not sure how much fire power they have left.
It's bee proven many times in the past that an outside event can trigger a selloff. In this case, it was China stocks as well as Greece taking larger hits than we have seen in years (approximately 5% down for China, and approximately 13% down for Greece). This is starting to look familiar…
Potential for a Big Move on the Downside
I have written in the past, that while the likelihood of a continued strong stock market is much larger than a correction, the chance of a big move is much larger on the downside than the upside, and I still hold this opinion.
When a correction occurs, it could come with fast, powerful moves. However, as we have seen in October, it is rare that markets go up or down in a straight line.
Volatility is expanding and the swings are much wider.
Below are charts of the major stock index futures : mini NASDAQ 100, mini RUSSELL 2000 and mini S&P 500. Notice that at the time I am writing this, Dec. 9, 7:30 am PST, all three major indices are flirting TOGETHER with major support levels.
Mini SP 500 Daily Chart:
Mini NASDAQ 100 Daily Chart:
Mini Russell 2000 Daily Chart:
This move can be played either way depending on price action. One can use straight futures, spreads between the indices as well as options.
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