I Have A Dream…Of A Correction (by phantomcapital)

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Let me tell you a quick story, I promise it leads to a point
about the market.  In January of 2010 I
went on a cruise with my parents the week of MLK Day.  The thought process was simple, I would only
miss four trading days instead of five, what could I possibly miss out on?  The market had been churning sideways to
slightly up for virtually a month and was showing no major signs of any
significant moves.  So it was the perfect
time for some Caribbean sun and a few drinks
with umbrellas stuck in pineapple.  I vividly
remember what happened next.  Wednesday I
was walking back to the ship, looked into a bar that had CNN on, and the ticker
showed the S&P -20.  Next day, the
same thing.  The day after that, same
thing.  I was FURIOUS.  The move I had been waiting over a month for
happened while I was stuck on a ship away from any way to trade.  So what's my point?  As always, let me present charts with
numbers.

MLK Week 2010

MLK 2010

 


Here is
how my vacation played out.  1.  A slow grinding break to new highs from a
mind numbingly painful tight range. 
2.  Consolidation at what should
have been a continuation of a rip roaring rally higher.  3. 
Bears take absolute control of the market and rip 100 points out in two weeks.  At the time, the
VIX was at new lows since 2008 and total complacency had entered the market due
to the slow grinding nature of the market.

MLK Week 2013


MLK 2013

Again,
a similar situation is playing itself out. 
The market has been grinding slightly higher since the first day of
January 2013 and has finally peaked its head above prior highs.  1.  A
slow grinding break to news highs.  2 and
3?  Well, if the bulls can't begin to stampede
higher like 2011 and 2012 then I have to look at 2010 as the roadmap.  My thoughts are this.  Volume has been low, the big players seem to
have taken zero interest in the market so far in 2013, and the VIX is at levels
of complacency not seen since 2007. 
Therefore a correction is certainly in the cards.

Normally I try and write my posts with fire and
passion.  I have conviction in what I'm
submitting.  I'm sure you can tell from
my prose that my heart is not into this post.  It seems like a fools game to make any type
of bearish idea public and I kind of just slapped this analog together; what's
the point?  And that is EXACTLY the
point.  When the bears have completely
thrown in the towel and complacency is everywhere, well that is precisely when
the biggest corrections come.  No one is
expecting to see red any time soon in the markets, therefore it might be a good
time to start thinking about just that possibility.

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