Why I almost hope this pullback is significant
Disclaimer: I am not a short term market move expert, nor hardly, and I always presume to not know the short term direction of the stock market. This isn't a prediction that this recent pullback will continue
On Monday I emailed my advisor (who is in mensa, BTW, and as I always say thats got to be good for me) and my former business partner the following (these are the two guys I really sit down and talk about stocks with). i'm calling a triple dip. we get one of two possible outcomes1. the market rally continues slowly up and S&P 1000 is breached in the relatively short term. In this case we have this scenario:Q2 or Q3 earnings, or maybe Q4 dissapoint. Panic over the economy not recovering as fast as expected sets in and we get a third dip. not a severe one, not to 700, not a new low, but a dip nonetheless of well off the then-highs. talk turns to how the economy isn't recovering, thigns will be crappy for years... and the markets sink once again.2. we get a meaningful dip here say the S&P drops 100 points and things turn pessimistic again in the short term. in that case the market will begin a long slow crawl back up.one way or the other, we get a third dip, and thats my final word.
In my view a significant correction now will get us to S&P 1100-1200 (my tentative exist point from stocks for a time) faster than if the rally continues now. A pullback now will be better for longs/bulls going forward if you look out a year or so.
So while I hate to see the violent attrition in my real world portfolio - and it is violent on very negative days like monday and today - i'm basically used to the wild volatility by now (i've been up as much as 18% in a day, 3 days over 10%, and as much as 9% down in a single day this year. I have a high average beta) and I think that if we get pretty low now that will leave me better off in 1 year than if this rally continues for a while.
That has been my contention for a while - if we get a meaningful pullback in something resembling the short term, it will set the market up for a stronger, healthier, more sustainable (and probably slower) crawl back up over the next year or 2. If it keeps racing skyward... we are setting ourselves up for a possibly ugly correction at some future time.
A meaningful pullback now will allow some others a chance to get in on long positions they mean to hold, allow the market to build a base for future gains, and all of that.