Not One, or Two, But FIVE Corrections of 10% Are Possible

"This market is way overbought – a correction is coming!"

We've heard that for weeks. I'm tired of it!

It's not because it's wrong... but because, my friend, OF COURSE a correction is coming!

That is not a bold prediction. It is a simple fact...

The simple truth is that stock markets have corrections. (Corrections are typically defined as a fall of 10% from new highs.) If you can't handle that, then don't invest.

The big question now is, could we see a correction during the current stock market "Melt Up"?

Of course!

But if we see a 10% correction during this Melt Up, would that mean the Melt Up is over?


I say this so emphatically because of this fact:

During the last great Melt Up in stocks – the dot-com boom of the late 1990s – the Nasdaq Composite Index actually saw five roughly 10% declines during its final push higher.

Take a look...

These falls were quick. They all happened in a month or less.

But don't think they weren't painful... A 10% fall in the broad index definitely meant larger declines in the more volatile stocks. During the worst of those corrections, you had to question if staying on board was the right move.

These days, folks are used to a one-way market... They will certainly panic in a correction.

My message today is DON'T PANIC. Corrections are normal – even in the Melt Up phase of a stock market boom.

So please, don't be surprised if the market falls 10% this year. Based on history, it could even happen more than once.

The next correction will be painful. It will feel terrible. But don't panic. A correction (or two, or more) does not signal the end of the Melt Up.

Good investing,


Further Reading:

Steve recently shared one indicator that has predicted each of the last three market peaks, going back 30 years. Learn how to use it right here: All Right, Mr. 'Melt Up'... So When Does It End?
"Even if the market corrects, we're likely not going to see a massive 40% fall – for one reason," Dave Eifrig writes. For the full details, check out his essay: How to Ride out a Correction Like a 'Market Stoic.'
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Market Notes

Highs and Lows

Boeing (BA)... "offense" contractor
Raytheon (RTN)... "offense" contractor
Northrop Grumman (NOC)... "offense" contractor
Lockheed Martin (LMT)... "offense" contractor
Roper Technologies (ROP)... diversified engineering
Thermo Fisher Scientific (TMO)... life-sciences giant
Facebook (FB)... "FANG" stock
Amazon (AMZN)... "FANG" stock
Microsoft (MSFT)... "digital utility"
Nvidia (NVDA)... chipmaker
Match (MTCH)... online dating
eBay (EBAY)... online marketplace
Mastercard (MA)... credit cards
Choice Hotels (CHH)... hotels
Carnival (CCL)... cruises
Ferrari (RACE)... fast cars
Pool Corp (POOL)... swimming pools
SodaStream (SODA)... do-it-yourself soda
Blue Buffalo Pet Products (BUFF)... pet food
Dollar Tree (DLTR)... discount retailer
Activision Blizzard (ATVI)... video games
Take-Two Interactive (TTWO)... video games
Electronic Arts (EA)... video games
New York Times (NYT)... global news coverage
World Wrestling Entertainment (WWE)... pro wrestling
Skechers (SKX)... shoes and accessories
Sprint (S)... debt-laden telecom
TiVo (TIVO)... digital-video recording
Barnes & Noble (BKS)... bookstores
Brixmor Property (BRX)... shopping center REIT
Washington Prime (WPG)... shopping center REIT
Nordic American Tankers (NAT)... oil tankers