MrTopStep’s Best of 2105: S&P 500: 1,400 Days Since The Last 10% Correction

Originally published on August, 5 2015

I have written a few stories in the last few years about the ‘last 10% correction’ in the S&P 500, and while I knew it had been a long time since the last story, I never would have guessed that it’s been 1400 days.

BACK IN THE DAY

When Brian Shepard (SHPS) and I ran one of the largest S&P 500 index operations on the CME floor, the desk was packed with big orders, buying and selling. From 1985 to current, (SHPS) is still down there. The desk was part of every major stock market event; from the 1987 Crash, to the Flash Crash, we have seen it all, but I can’t remember the S&P going so long without a 10% correction. When I wrote the first stories on this topic a few years ago I did not have the ability to pull all stats back then, but with the help of our friends at www.witterandlester.com, and our friend Wayne Whaley ( WayneWhaley, Witterlester@gmail.com ), we have all the stats now.  I want to be clear on this story; most, or all, of the stats and charts from this story are part of Waynes research. I have known of Wayne for over 25 years, and have known him personally for the last 10 years. He is a terrific researcher and an exceptionally nice man. So lets get to the gist of this amazing story.

• The last 10% corrections occur on average about once every 18 months with  the last 10% selloff putting in a bottom on October 03 of 2011, which would put the current advance (as of August 4, 2015) at 3 years, 10 months, and 1 day (46 months) without a 10% correction, which would put this advance as the 3rd longest post 1950 advance absent a 10% correction.

• The two advances in the 1950’s were the most similar to today in terms of low interest rate periods, with rates climbing from 1% at the start of the decade to 4% in 1960. Rates very low and rising did not seem to present much of a headwind.

While today’s Opening Print may be short and sweet, the 1,400 days without a 10% correction is getting scary. In the past, traders were looking for any reason they could to be a buyer, but now, in the 6th year of the bull run, it seems like traders are looking for any reason to sell. Accordding to Wayne the longest post 1950 period, absent a 10% correction, occurred during the dot.com bubble expansion of the 1990s, as the S&P went seven years without a double digit pullback from 1990 to 1997.

At the end of the day I remain in the bull camp. While the short term risk may be down
I still think the S&P will trade to 2200.00 or higher by the end of the year. But I also want to remind everyone that MrTopStep is not here to fight city hall, and if perhaps the S&P does go down.. we want to go for the ride.

In Asia, 9 out of 11 markets closed higher (Shanghai Comp. -1.65%), and in Europe 11 out of 12 markets are trading higher this morning. Today’s economic schedule starts with the MBA Mortgage Applications, ADP Employment Cost, International Trade, Gallup US Job Creation Index, Treasury Refunding Announcement, 3 and 10 Yr-Note Announcement, 30 Yr-Bond Announcement, PMI Services Index, ISM Non-Mfg Index, EIA Petroleum Status Report and earnings from PCLN, TSLA, RL, DISH, DISCA, PRU, MSI, GMCR, WEN, CHK, HCA, CTSH, ICE, HLF, RIG, SPB, VC, AGU, RDC, FOXA, KATE, D, LMCA, SALE, SE, MRO, ANDE, WTW, JACK, SODA, CLR, CBS, PRGO, FMC, WCG, CTL, HI, GDP, MUSA, VOYA, CF, and LL.

S&P 500 FUTURES +3.5% to -3.50% IN 2015

Our View: This morning should be busy; we have a high level of economic reports and earnings coming out. Turn Around Tuesday did see some rallies, but the money trade was selling, not buying it. I think that may change today. There are a ton of buy stops building up above 2096 that go all the way to 2106.00, and I see no reason not to run them. Our view is to sell the early rallies and buy weakness keeping in mind that we think the bias will be up.

As always, please use protective buy and sell stops when trading futures and options.

In Asia 9 out of 11 markets closed higher : Shanghai Comp. -1.65%, Hang Seng +0.44%, Nikkei +0.46%

• In Europe 11 out of 12 markets are trading higher : CAC +1.24%, DAX +1.30%, FTSE +0.37%, MICEX +1.02%, at 6:00 am CT
• Fair Value: S&P -6.02 , NASDAQ -8.16 , Dow -71.82
• Total Volume: 1.32mil ESU and 2k SPU traded
• Economic calendar: MBA Mortgage Applications, ADP Employment Cost, International Trade, Gallup US Job Creation Index, Treasury Refunding Announcement, 3 and 10 Yr-Note Announcement, 30 Yr-Bond Announcement, PMI Services Index, ISM Non-Mfg Index, EIA Petroleum Status Report .

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