How to spot a correction? before it's too late...

Discussion in 'Trading' started by crgarcia, May 30, 2007.

  1. Anyone knows a good rule of thumb to spot index corrections in the earliest stages?

    Forecasting corrections to the exact day seems almost impossible, so, if at least we could watch the earliest stages.

    Something like if S&P futures are X points below fair value.

    Or if the indexes open Y% below yesterday's close?
  2. ??..............A daily-high followed by a lower daily-high is a rough guideline.
  3. no such method exists. If I knew I woudnt tell you anyway.
  4. Progression betting is the "magic key" to winning at the casino. Don't reveal that tidbit to them!
  5. S2007S


    ask anyone if they saw the Feb 27th correction coming, answer is NO!!!!
  6. panzerman


    It is impossible to consistently forecast. Technical analysis will always be looking in the rearview mirror to see what is in front.

    If you're looking to close a position before the correction happens, you should always react too early and don't rely on hope that the move will keep going. Consider an algorithmn such as this:

    Go long (short) if the price has closed down (up) for five consecutive days, and is still above (below) its 200-day moving average.
  7. best way is to watch leading stocks. when they take a hit, and can't get back to new highs while market and other laggard stocks keep moving up, a correction is probably around the corner. this won't provide you an exact date, but usually is a good tell.

    livermore would see that and start taking pilot short positions in the leaders that stopped leading, and add when the whole market followed.
  8. fhl


    Not to argue, but some would say this phenomenon that you described may just be a change of leadership. They would also say that when the leaders keep going and nothing will follow is the real tell of a correction. Lots of interpretation involved, of course.
  9. i here ya, but change of leadership rarely occurs without some kind of correction before, and i have yet to see leaders keep going up while the rest of the market peels off.

    the late february selloff this year was a great example of leaders hinting at possible correction. stocks like wynn, lvs, aapl, goog, the brokers, some of the exchanges etc... the leading stocks of the move preceding mkt selloff got hit earlier in month, and couldnt make it back to new his. while market as whole kept moving up until the break.
    #10     May 30, 2007