When Does Correction End?

JC Parets
October 27, 2023

We're over 3 and half months into a stock market correction that I keep being told is just the beginning of a major crash.

I'm just not seeing it.

This continues to look like a regular seasonal correction that we've seen so many times around this time of the year.

In other words, if the market was NOT correcting like it has been, that would actually be very unusual.

Here's what each of the sectors and major indexes have done since the new 52-week highs list peaked in July:

A few things that stand out:

Energy was the only sector in the green during this period, rallying over 4% despite most stocks correcting.

Also, the Dow Jones Industrial Average is down ONLY 4.5% during this period. That's impressive.

Communications had been one of the best performing sectors in the market every single quarter this year. And now throughout this correction, Communications has held in there really well again - one of the best performers of all the sectors.

And finally Healthcare. This sector has been forgotten about. I would encourage all investors to zoom out. Large-cap Healthcare is in a long-term secular uptrend. Just because it's gone sideways for 2 years doesn't change that.

The most valuable time to focus on relative strength is during corrections. That's what we're doing here.

The leaders showing relative strength during market corrections tend to often be the leaders in the ensuing uptrend.

What's the catalyst?

I still think for stocks to get going into a year-end rally, they're going to need to see a weaker Dollar.

The NYSE new lows list peaked on October 3rd. That was the same day that the US Dollar Index put in its high.

That's not a coincidence.

I think the biggest catalyst for stocks to get going is a break in the US Dollar Index below 105 - 105.50.

For me, that's it.

The US 10-year yield made new highs in the back half of October.

The US Dollar Index did NOT.

That divergence needs to be front and center if you have any exposure at all to stocks.

We'll discuss it all next Wednesday, November 1st, on our LIVE Monthly Charts Strategy Session.

Look out for the registration link, which is being sent out shortly.

Bring your questions!

JC

 

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