How to Spot a Stealth Correction

The fourth quarter is when you can make your hay. October 02, 2014     How to Spot a Stealth Correction   Stocks slide What does breadth tell us? Plus: Searching for support   Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner The fourth quarter is when you can make your hay. It's no secret that the last three months of the year are huge for traders—and investors, for that matter. October is the gateway to the best performing months of the year. But you probably already noticed that October didn't exactly start off on the right foot… Yesterday's action was, in a word, "ugly". Stocks hurtled lower virtually the entire day. The Dow finished down more than 200 points. The Nasdaq dipped nearly 1.5%. Almost everyone—and everything—had a bad day. So what's up with the market's terrible performance? Is Ebola to blame? Or the protests in Hong Kong? I don't think so. In fact, the real story has been unfolding behind the scenes for weeks now… The market has been suffering through a stealth correction. That's why I continue to bring up the "tale of two markets". It points to some troubling action bubbling under the major averages. Take small-caps, for instance. The Russell 2000 has been diverging from its large-cap cousins for months. Now, mid-cap stocks are starting to crack. What this means is that right now, fewer and fewer stocks are propping up the market. The major averages have remained relatively stable thanks to a few strong large-cap names. But when you take a second look, you'll notice that most stocks have already pulled back. You can see this phenomenon when you look at the percentage of stocks in the S&P 500 that are currently trading above their respective 50-day moving averages.     As you can see, a majority of stocks have already sunk below their 50-day moving averages. While not as many are in correction mode as we saw back in August or February, it's getting closer this morning… Now, you probably get sick and tired of hearing this from me—but I don't care. I have to remind you that despite the divergences, bad breadth, and other not-so-bullish data we're getting from the market, no clear-cut "sell-everything-and-run" signal is flashing just yet. We've seen plenty of furious rallies after big pullbacks throughout the course of this bull market. To bet against it now isn't the best idea in the world…         CIA Insider: "This Spooky New 'Money' Will Replace the Dollar" A shocking new plan to replace the U.S. dollar as the world reserve currency has surfaced. And it's coming straight from a top financial threat adviser to the Pentagon  and director of national intelligence. This plan has been cloaked in secrecy for years. But now this CIA insider is blowing the whistle… Click here for the stunning details.           Rude Numbers Targets, Predictions and Wild Guesses   $89.47 buys a barrel of crude today. Oil is dipping below $90 for the first time in 2014… $3 is the price of copper today. Dr. Copper is threatening another breakdown as it approaches its April lows… $1,215 is where you'll find gold futures this morning. The yellow metal is breakeven on the day so far… 275 points fell off the Nikkei today. The Japanese index lost nearly 2% in Thursday trading… 1,938 marks the spot for S&P futures just before the bell. Stocks are looking at another red open as we approach the end of the trading week…     Rude Trends When to Buy... When to Sell   This morning is already getting interesting. Stocks are near support. And the next few days will give us the information we'll need that could impact our trading for the rest of the month… "Put simply, the next few sessions will be very important for the health of this rally," our own Jonas Elmerraji explains. "If shares violate trendline support materially in the next couple of days, then we've got an important sell signal. Otherwise, a bounce off of trendline support is another big buying opportunity here… "As a trader, context is crucial – so let's not forget the fact that in spite of the other corrections we've seen this year, the S&P 500 has made new all-time highs in every single month of 2014… "As I write, the big index is only 3.7% off from its all-time highs. So it's more of a cold shower at this point than a bloodbath." Try to keep your emotions out of the way today. By the close, we should have a clearer picture… [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 Obama Poisoning Your Family? [urgent] This Could Cut Your Grocery Bill in Half [must see] Is Obama Collecting "Executive Dividends?"     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. 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