Is a Market Correction Coming? Yes, But...

Is a market correction coming? Yes, of course! But I’m not going to predict when.

During the World Economic Forum in Davos, the normally cautious hedge fund manager Ray Dalio (Bridgewater Associates) said that investors will feel really stupid if they hold cash. After hearing this, I thought for sure the markets would crumble (that’s just my contrarian nature). Yet, the opposite occurred – buyers went on a binge.

The bulls are not done

This was just a continuation of what we’ve been seeing through January. The amazing returns we experienced this month are certainly for the record books. Several new highs have been made – a stark contrast to how the year finished in 2017.

The bulls woke up after investors threw in the towel on the Santa Claus rally, and they have been carrying this market to new heights. Technicals, breadth and volume have been strong with heavy call option buying. Rotation into leading sectors has also buoyed the markets.

Action like this has been called feverish and unsustainable. Other superlatives have been used to describe the market rise, but generally speaking, most investors are stunned. If you are looking for a reason to rationalize these extraordinary gains, don’t. At the end of the day, you need to focus your energy on high-probability success strategies, not guessing.

When is a marketing correction coming?

So yes, at some point the markets will pull back, no one will buy the dips and we will be facing a market correction. Will it be near or far in the future? It makes no difference. Those who guess are going to be wrong a lot. Eventually, they’ll be right, just like a broken clock is also right twice a day.

For now, the markets are well overbought. Any pullback may seem like the end of the world (a 2% move lower on the SPX is 58 points, something that would seem painful at the time). The trend is still up, and indicators continue to point in that direction.