Time Versus Price Market Corrections

mdaily20160719

Photo by JR Lancaster

These petroglyphs date back around 1500 years ago. However, they could just as easily have been drawn 150,000 years ago as drawn today. Why?

With hunters in pursuit, the herd mentality has both the antelope and the bison fleeing. The fastest and strongest of the herd will most likely escape. The slowest and the weakest are at risk of capture.

Since nobody wants to wind up as dinner for the clan, this photo represents traders running for the exits (or the weaker and nervous longs.)

With the Dow on new highs and trading in a consolidation pattern, those traders who got a head start on getting long are now taking profits. They will live to see another day to graze.

Those who may finally accept that this rally is real are usually the last ones to get in and the first ones to get caught. Whether they live to see another day to graze remains unclear.

The strong traders should be lightening up. The weaker ones should be perfecting their timing. Regardless, both should acknowledge that market corrections can also happen through time rather than price.

The Dow had a runaway gap last week. Defined as a gap to new all-time highs, we haven’t seen that occurrence since January 23, 2013. On that day, the DIA gapped up closing at 137.46. It finally ran out of steam on May 28, 2013, 4 months later. Naturally, there were ups and downs, but the overall uptrend remained steadfast.

Even after May 28th, DIA had a substantial sell off only to resume the uptrend near the end of June into August. Then after another correction, it ran up again in September, then October finally peaking in May 2015 at 183.35. Until last week.

Now, DIA has a new runaway gap that only negates should DIA trade back down to 183.60. Therefore, we must prepare for not only a time correction, but also for the possibility that in spite of expected volatility along the way, DIA is heading higher!

How to avoid winding up as the clan’s dinner?

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Keith Schneider 4 years ago Contributor's comment

great article