The correction continues.

Stocks had a bad day yesterday. The S&P 500 closed below Tuesday’s intraday low.

The action was brutal. If we were to break out the “pain chart,” most folks are probably hitting an 8 or 10 about now.

But this isn’t a bear market – not yet, anyway. Bear markets don’t begin this way.

Having said that… I do think we will see the end of the bull market and the beginning of a bear market sometime later this year or early in 2019. I’ll write about the circumstances that will create the bear market as we get closer to it.

For now, the current decline is merely a correction. It’s the meanest correction we’ve seen in a while, but it’s still just a correction.

If you’ve been reading the Market Minute for the past few months, then you know the last time I was really interested in buying stocks was last November – just before Thanksgiving. The S&P 500 was trading at about 2575. And the Volatility Index (VIX) had just triggered a buy signal.

As stocks rallied into December I grew more and more cautious – to the point where I was advising readers to raise cash and only put money to work in sectors that had underperformed and could play “catch-up” with the market (like gold and retail stocks)

I was tempted to short stocks. But I only made a few attempts to do so, and only when conditions were quite stretched. And I was real quick exiting those trades.

My problem with the stock market since mid-December has been its straight-up move. As I explained in mid-January…

Declines are healthy. They relieve the selling pressure. They shake out the “weaker hands” and create a stronger foundation for longer-term gains.

Any asset that goes too far without a selloff is likely to get pummeled at the first sign of weakness. Everyone who’s anxious to sell – but didn’t do so for fear of missing out on even bigger gains – rushes for the exits. The rapid decline scares away the folks who would normally be willing to buy. And the price hits an air pocket.

That’s when you get a dramatic overnight decline.

If you have cash, then you can take advantage of the move and buy at depressed prices while everyone else is selling.

The stock market is now back down to where it was the last time I was interested in putting money to work. The selling pressure has shaken out a lot of the “weak hands.”

Just to be clear… I don’t expect the market to reverse all of a sudden and immediately rally back to new highs. Rather, the market is likely to chop around in a wide trading range for the next several weeks.

But much of the immediate risk has been wrung out of the market. So, for traders who have cash, now is the time to take advantage of the move and buy at depressed prices while everyone else is selling.

It’s hard to do, no doubt. It can be gut-wrenching to step up and buy when everyone else is selling.

But it’s those gut-wrenching trades that tend to work out the best.

Best regards and good trading,

Jeff Clark

P.S. Something that readers tend to like about the Delta Report is how balanced it is. Between the numerous conservative and speculative trades issued each week, we always find a chance to profit.

And now, with volatility returning to the markets in such a big way, there’s only more opportunity.

To learn more about a subscription to the Delta Report, click here.

Reader Mailbag

Today, some comments on yesterday’s gold stock essay…

So this time is different…gold seems to be following the market, not hedging against drops…?

– Steve

 

Hello, Doug Casey says to buy gold due to the new law in India this summer. Yet, you seem to say not to buy gold.

– Darrell

 

Jeff: Hi Darrell. I would never argue with Doug Casey about gold. I prefer, though, to buy it on weakness – which I think we may see in the short term.

No kidding, Sherlock! Just blew the money I was going to use to buy your research. Guess this call actually saved me money in the long run.

– Phil

 

Sherlock: Hi Moriarty.

Losing trades are going to happen to everyone from time to time. Based on your reaction to it, that makes two of us who are glad you won’t be subscribing.

Also, some notes from Delta Report subscribers…

My account is up 150% in the last 6 months. Not 50% but 150% higher.

If I hadn’t made a couple mistakes in trading, it would have been up even more. Without your excellent advice, I would have quit trading options years ago.

Friday to Tuesday’s market action reminds me of this photo of a surfer on the face of a 50-foot wave. It’s only scary if you wipe out.

– Dale

 

I remember getting a kit from you with a nice pen in it. I still have the pen.

Thank you.

P.S. I am 70 and just retired.

– Crystal

 

As always, be sure to send in your trading stories, questions, and comments right here.