Stock market correction: Thus far, normal

The September-October stock market correction is thus far normal

It’s normal that…

  • After a summer of excessive risk taking and speculation the stock market would take a correction in September as da boyz and da machines get back to work full time.
  • The supposedly spooky Sept-Oct seasonal will live up to its reputation to the degree that it clears out the momos and other summer speculators in the form of a healthy correction.
  • All major indexes maintain their major uptrends and you should not get whole hog bearish until said trends are broken.
  • Speculation, in the face of a thus far minor liquidity issue (ref. Gold/Silver & USD) has backed off but is still in play, since it is speculation that the Fed instigated and is trying to tamp down expectations of currently. NFTRH uses Junk vs. Treasury bonds as one of its market internals indicators.

So to that last point, here is a view of Junk bond fund HYG in relation to Treasury bond funds IEI and IEF, which cover the meat of the Treasury maturity spectrum at 3 to 10 years.

The last two decent market corrections carried negative divergences in the Junk/Treasury ratios (yellow shaded areas) and today’s market correction does not have that. Little is certain in the financial markets but we can state a fact here, which is that in 2014 and 2020 the market proceeded higher into a top that came months after the bond ratios topped and started down. Another fact is that there is no such divergence currently in play (although if you want to be picky you could read the lack of a higher high in the ratios as a divergence on the big picture).

So, other than facts like those feel free to guess about outcomes or even listen to those who would have you get positioned for “THE WORST DEPRESSION IN THE HISTORY OF THE WORLD”. That from, err… 1.5 years ago, complete with all caps in case you did not get the point when it was sledgehammered to your head. Once again I am not going to ID the source, but yeah, at the peak of pandemic fear he was telling completely terrified casino patrons exactly what they wanted… needed to hear.

Can this correction turn into a real bear market? Sure. Yes, absolutely it’s capable because a bear market is coming in the form of a bust of the inflated bull. Has it yet proven anything toward that end? Another fact… no. Not yet.

junk bonds vs. treasury bonds

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