I’m not a doomsday person but I’ve also been through two major bubbles and all one has to do is look themselves and see how historic this past 10 yrs has been. Not only the length coming out of the Financial Crisis but the gains as well. 

This is were relatively new traders or investors may get thrown off guard.  By new I mean since the 2009 bottom because the reality is it’s been REAL easy to be a trader the past decade compared to history. Just take a look at the massive move in the graphic from 2009 until now. The same trading methodology in a runaway (Asian Finc Crisis aside) won’t work the same in a more ‘normalized’ market. 

To put things in perspective, running the fibonacci retracement from the 09′ lows to the near recent highs we can see that even what is considered a normal and healthy pullback to the 38.2% Fib would put the $SPY at $202.84. Now this is just what is considered a normal and healthy pullback for any asset class when Fib levels are applied to. But now take into account that ‘we’ the U.S. and the whole world is leveraged 2X the levels of 2008. If the markets begin to really roll over the next major Fib level that has the equal strength and attraction to if the 38% should not hold as support is the 61.8% at $151.7. To my amazement, that level lines up almost perfectly with the highs of 2008. The 2008 high and 2009 lows are circled in the graphic which also includes the Fibonacci Retracement levels. 

If you weren’t paying attention to the markets in 2008/09 the fear on the street was something most traders have never experienced and in told we dropped 90 basis points. Now that is arithmetic and not logarithmic but the reality still stands that most are not, and in my mind always should be, prepared for the possibility of a real, meaningful correction; not a little 10% correction which is about the extent of the drop in February of this year. 

So, just throwing it out there to put a little fear in some who have never been trading or investing at the time of a series correction. I’m not saying it’s going to happen but it doesn’t hurt to be aware of what is in the realm of possibilities. 

 

 

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