S&P 500 2% Correction?

Marketbeat notes: "The market has reached a point where the word “correction” has seemingly lost all meaning — because the most marginal of declines is referred to as such. Bianco Research points out that the S&P 500 has not declined by 2% since July 13 — the second longest-period without a 2% correction since 1964. “Only the 1995 period saw a longer string of days without a 2% correction,” they write, noting that a 2% decline really isn’t a correction in the first place, just noise."

Prior to yesterday’s light volume holiday volume rally, in December, the SPX had sagged about 1.14%.


Jim Bianco observes: “As the table above shows, the S&P 500 has not declined 2% since July 13 (currently we are seeing the third decline of more than 1% during this period). This string of 162 (actual) days is the second longest period of no 2% correction since 1964. Only the 1995 period saw a longer string of days without a 2% correction.”   

A further interesting observation via Bill King: The current rally is the weakest one in the above table.

Let’s consider the context of each 7 rallys: The 1928 rally saw its first 2% correction late in a 10 year Bull move, coming 10 months before the peak; The rallies in the ’50s and ’60s (1953, ’58, ’61 and ’64) were in the middle of the post WWII secular bull market;  The 1994-95 move was also mid-secular Bull run, also benefitting from the 1995 soft landing.

How aberrational is the present run compared with these prior moves? With only 7 examples, the sample is too small to draw reliable conclusions. But it does raise some very interesting questions:

-Is this long non-corrective phase signaling a 1995-type soft landing? or

-Are we in the middle of a secular bull market, after only 3 years of a secular Bear market (2000-03)? or

-If this is the weakest such rally, might it have further to run? or 

-Is this rally (called unnatural by some) truly unusual?

I am unsure of the answers — but this data certainly raises some very interesting and curious questions . . .



Bianco Research

The King Report

Correction? We Are Not Familiar With This Phrase, ‘Correction’
David Gaffen
WSJ Marketbeat, December 26, 2006, 2:39 pm

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What's been said:

Discussions found on the web:
  1. My1ambition commented on Dec 27

    Barry, you do remember what happened last time you did one of these. I think we had that 1% correction within the week. Good luck!

  2. My1ambition commented on Dec 27

    I had to add this. It’s the Best Line I’ve heard yet.

    “007 will be the year of the Bond”
    – Bloomberg Columnist, Matthew Lynn

  3. Leisa commented on Dec 27

    BR–When I read articles such as this, and there are many, where everyone is trying to divine what the market is telling us about the economy or what the economy is foretelling for the market and any other prognostication, distillation or machination that every pundit posits (yes, even you, said respectfully!)….I’m reminded of Ed Young’s excellent Seven Blind Mice. It should be on every investor’s bookshelf. (If I’ve posted this here before, my apologies for repetition). The story–and if you are a parent, shame on you for not knowing!–is about seven blind mice running up and down an elephant trying to figure out what it is.

    (An aside: I’m also reminded, unpleasantly, of statistics, where the N is too small for any of these observations of “every recession since 19xx or every bull market since 18xx” to have any validity).

    I always think of Young’s book when I want to put undue weight on one person’s view over another, realizing that it is the conflation of all of these divergent views that is somehow we must fashion in some aberrational mosaic that may be nearer the truth.

    And buy the book for a child in your life (or in you). It’s a terrific lesson wonderfully told and the illustrations are great.

  4. idontworry commented on Dec 27

    unnatural or what ever you want to call it none of it matters but price and trading with out emotion. making lots of money in the market is not complicated. lol

  5. My1ambition commented on Dec 27

    none of us ever “worry” in the true sense of the word. We all try to make money investing or trading. Sometimes knowing the “unnatural” can be useful since these trends always recur. (a 2% correction is a when not if). That’s all Barry’s trying to point out.

  6. Barry Ritholtz commented on Dec 27

    I use trend following all the time — but I also want to remain conscious of when trends start behaving aberrationally. The present trend fits into that description.

    The trend is your friend, except for the bend at the end . . .

  7. Fred commented on Dec 27


    Isn’t “the market” a graphical picture of supply and demand? With that swing thought in mind, we know that massive cash vs. tight supply of equities (M&A, buybacks, LBO’s) have been the “force”. If that is all correct, we need a change in that dynamic, to change “trend”, no?

  8. CDizzle commented on Dec 27

    Those questions posited are not representative of a “Permabear” or anything of the sort, for those who might stain our fearless blogger with such a name.

    Steady, smooth upswings (be it the market, an athletic performance, a relationship) often cease with a dramatic decline.

    Of course, they often keep goings.

    We (being the people/institutions doing the buying/calling) are in the denial phase…denial over the health of Joe Sixpack…the housing market’s impact on the other 94% of GDP, and other things.

    Great article Barry…

  9. BDG123 commented on Dec 27

    Longest run in decades without a 2% intraday correction in the spx as well. In fact, as I recall, we’ve only had 1-1% down day this rally.

    All of this commotion to be a few percentage points above or below the May high for nearly every index.


  10. Idaho_Spud commented on Dec 27

    Barry Barry Barry.

    You are being very unpatriotic, questioning these things ;)

    The Fed and the boyz at Goldman have things well in hand, and we’re even better off than the permanently high plateau we reached in 1929. This time it’s different, because we’re not at a plateau – we’re going to have liquidity-driven bull markets from now on.

    If share prices begin to fall, companies can sell some junk bonds and prop them up with stock buybacks. Guess they didn’t think of that in 1929.

  11. muckdog commented on Dec 27

    One has to wonder about the health of the market since we’ve been meandering back and forth now for a month, the former leaders (AAPL, GOOG, RIMM) are stumbling, lots of bulls out there, and there are negative divergences in the technical indicators.

    Just thinking to myself. Doesn’t mean it has to fall apart just this minute.

  12. Si commented on Dec 27

    I think we will get a correction in January, how big remains to be seen. We need to think about what could bring it on. I still reckon inflation could be a bigger problem going foreward than people realise.
    Its very interesting, the lack of real corrections and a bit worrying if you ask me. Try and cap the downside cycles and the upside becomes pretty limited as well. Those nasty little corrections are so un PC these days.

  13. Si commented on Dec 28

    Oh yeah, I also thought we would get one in Nov into Dec, which just shows that I am full of it.

  14. angryinch commented on Dec 31

    Not sure what Bianco is talking about. The SPX had a 2.5% correx in mid-Aug, a 2.1% correx in late Oct and another 2.2% correx in late Nov. Not to mention a 1.9% correx in early Sept.

    That’s four 2% correx since July, basically one per month.

  15. Barry Ritholtz commented on Jan 1

    I believe he was referring to a 2% correction in a single day . . .

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