After a pretty dramatic run-up by large capitalization tech stocks, the market has entered into a corrective mode. We think this correction could be the one that corrects the entire move from the March low. This a normal occurrence which usually retraces about a third of the rally from that low. We intend on making some portfolio changes during this time as this type of decline often accompanies a change in market leadership. September is the most likely time for this to begin and October is the month with the most important market bottoms over the past 120 years.
There is a market phenomenon, that is not talked about much but occurs quite frequently, that is called a fractal. In the past we have used the term “bump correction” to describe the way the market would “take a break” or correct its long-term bull market pattern such as between 2018-2020. Now we are talking about a geometrical term that refers to the similarity of patterns at different sized scales. We use this term to describe the relationship between two successive price patterns, mostly declines, in each time period. It appears this may be occurring again on a much smaller scale in the Dow and the S&P 500 index charts. If so, the correction should stop between 3000-3200 on the S&P and this should lead to the resumption of a new bull market leg, probably at a stronger pace. The most recent example of a fractal occurring in the Dow and S&P was in 2011 during the European banking crisis where the decline was similar to the collapse in the market in 2008, only on a much smaller scale. That fractal led to a 100% increase in the S&P over the next 3 ½ years. We expect to exceed that this time around.
Gary and Dianne
This report is provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance.
Any security mentioned in this report may not be suitable for all investors. No investment mentioned in this newsletter constitutes a recommendation to buy, sell or hold a particular investment. Such recommendations can only be made on an individual basis after an assessment of an individual investor’s risk tolerance and personal circumstances. Past performance of any investment mentioned is not a guarantee of future performance. Statements regarding the investment concerns and merits of any company and fair market value computations are strictly the opinion of Marin Group. Employees of Marin Group and Marin Group clients may have positions and effect transactions in the securities of the issuers mentioned herein.