Get Ready -- Here Comes a Correction

For the past few months, trading has been easy... April 07, 2014     Get Ready -- Here Comes a Correction   When not to buy the dip The momentum massacre continues Plus: More red flags...   Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner For the past few months, trading has been easy. You buy the dip. You find the strongest names and ride them to new highs. You book gains. Lather, rinse, repeat. But when it comes to the markets, easy trading doesn't last forever. After the dismal market action we witnessed toward the end of last week, it's becoming apparent that the market isn't going to play nice anymore. "Just look at the 2.7% drop in the NASDAQ on Friday, and it's easy to see why the love affair with stocks is going through a rough patch," explains my trading buddy Jonas Elmerraji. "The momentum names that have worked so very well over the last 15 months aren't working anymore. They're rolling over and getting hammered." Tech stocks, popular momentum names and small-caps all took a dive late last week. Now, they're dragging down the rest of the market with them. I don't like the action--not one bit. From what I'm seeing right now, I believe we are in the beginning stages of a significant market pullback. The key ingredients for a correction are starting to appear. Investors are rotating into safer sectors like utility stocks. It's time for you to get defensive... Keep in mind, we've done nearly two years without a correction of at least 10% in the S&P 500. Take a look: "Two years without a 10% correction is unusual," technician John Murphy writes on his Stockcharts.com blog. "A correction of 8% took place in the autumn of 2012, and a smaller 7% drop in the spring of 2013 (during May and June). An even smaller pullback of 6% took place this January. An S&P 500 drop to its early 2014 February low near 1740 would represent an 8% correction. That's probably the minimum correction we can expect this year." Market cycles are lining up in support of a correction, too. Stocks are historically weak during a midterm election year (check). And spring is usually the season they begin to falter (double check). You goal right now is to try to avoid doing anything stupid. Don't load up on a bunch of popular stocks because they "have to bounce here". They don't. Keep reading for more important correction tips from Jonas...         It's Time to Cash in on America's Next Age of Wealth Many people believe the time to make a fortune in oil is over… But they couldn't be more wrong! America will become the world's largest oil producer in the next five years… and those who get in now could see unimaginable wealth. Click here now for details.           Rude Numbers Targets, Predictions and Wild Guesses   $147 million is what now-bankrupt Brookstone is seeking in the luxury gadget retailer's planned sale to Spencer Spirit Holdings. 110 points fell from the NASDAQ Friday. The tech-heavy index slipped more than 3.5% Thursday and Friday combined... $1,301 marks the spot for gold futures this morning. The yellow metal has recovered $1,300 after a particularly rough few days for stocks. Speaking of round numbers... $100 buys a barrel of crude this morning. Oil is fighting for higher ground so far this month. It has surged more than $3 off its March lows... 1,853 is where you'll find S&P futures this morning. Stocks are looking to begin the new week in the red--not a great sign for the bulls...     Rude Trends When to Buy... When to Sell   "From a technical standpoint, nothing much has changed about our near-term outlook on the market," Jonas explains. "The S&P 500 has barely budged since I updated you last week, tacking more time onto the sideways correction in stocks." Yes, the S&P looks like it's ready to drop some more this week... "The market internals are also weakening," Jonas continues. " In the last few up days, the S&P 500 has tested nearby highs, even though fewer than 10% of its components were making new highs individually. In fact, according to Bespoke Investment Group, despite the fact that the S&P has been touching new high territory this week, the average stock in the big index is actually down 7%!" Those are some serious red flags. So what is a trader supposed to do? "We've been talking about a correction coming since the end of February, and a sideways correction is exactly what we've seen." Jonas says. "But I bring it up because it means that the market is still being very technically obedient. So while most investors get more and more anxious, we can feel pretty comfortable knowing that our toolbox is keeping us a step ahead." Do you have the guts to try and trade this market? Join Jonas for his trading challenge and find out ... [Ed. Note: Send your feedback here: rude@agorafinancial.com - and follow me on Twitter: @GregGuenthner]     Ignore At Your Own Peril Today's Must Read Links   Is The White House Terrified of the "Secret $200 Retirement Blueprint?" Oust the NSA With One $7 "Trick" If You Own A Firearm, You Must See This     BE SURE TO ADD dr@dailyreckoning.com to your address book.       Additional Articles & Commentary: Join the conversation! Follow us on social media:         The Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Agora Financial delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from The Rude Awakening, click here. Please read our Privacy Statement. For any further comments or concerns please email us at rude@agorafinancial.com. If you are you having trouble receiving your Rude Awakening subscription, you can ensure its arrival in your mailbox by whitelisting The Rude Awakening. © 2014 Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security they personally recommend to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.