The 2021 Stock Market Correction

July 28, 2021

The question I keep seeing goes something like this: "Will all this weak breadth finally cause a correction in the market?"

But the right question to ask isn't whether or not a correction is going to start.

It should be: "How much longer will this correction go on?"

That’s the key to remember here.

And I understand some people just own the S&P500 or Nasdaq ETFs. And that’s great. But that’s not what this discussion is about.

What we're addressing here is specifically whether or not “stocks” have been in, are in, or will be in a correction.

We like using math based on actual data here. The median Nasdaq stock is down 18% from its highs. So if you're waiting for "a correction" in stocks, what do you call the past 5 months?

The Average drawdown in the S&P500 is 8.2%, for Mid-caps it's 13%, 18% for small-caps, and 17% for NYSE Composite.

Which part of this is not representative of a stock market correction?

Seems to me like most stocks are struggling to make any progress.

Some stocks are going up.

Most stocks are not.

As you can see here, fewer and fewer stocks are going up:

And more and more stocks are going down:

So 4 months ago, things were just getting "Less good".

Fast forward to more recently and things are not only getting "Less good", but they've also been "Getting worse".

We are not seeing improvement. It's just math.

We're not getting more countries making new highs. But we're seeing more countries making new lows.

We're not seeing more industry groups breaking out. But actually more industry groups are breaking down.

Some stocks are going up. Most are not.

We're not waiting for a correction to start. We're waiting for the correction to end.

We discussed it over a quick livestream on Twitter today:

Stealth Correction https://t.co/1BIyUe5c2d

— J.C. Parets (@allstarcharts) July 28, 2021

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The 2021 Stock Market Correction

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