A NEW WAY OF LOOKING AT MARKET CORRECTIONS
Looks like we're in the process of completing our first leg down of this correction phase. I'll be going over a bunch of charts this coming weekend. For tonight, however, I want our focus to be on one. The chart we're looking at tonight is the QQQQ.
Correction phases are tricky affairs. It makes sense that they would be. They (correction phases) are essentially rinses. It is an attempt to rinse the weak hands from the market so that the proper balance is observed in order for the averages to resume their uptrend with maximum strength and dexterity.
The best way to visualize a rinse is to imagine investors in a bull market as a pile of shit on the sidewalk. I hope I didn't lose you...just stick with me here and you'll see where I'm going. Ok. Investor's are a pile of shit sitting on a sidewalk. The rinse that takes place is basically a very high pressure hose pointed right at the shit (investors).
Initially, the weakest investors (surface shit) get carried away by the pressure of the water coming from the hose. What remains then is the more firmly ingrained shit. As the pressure from the hose becomes more concentrated, even the most firmly ingrained shit doesn't have the strength to hold on and is carried away with all the rest.
What remains at that point are only pieces of shit that are embedded so deeply in the cracks of the sidewalk that they cannot be rinsed away. Once there is nothing left to rinse, the pressure stops and those who manage to embed themselves deep within the cracks of the sidewalk, get to walk away with the pleasure of participating in the next leg up for the market
What the market has done to date is to rinse away the surface shit, mostly in the form of phase 4 investors. It has also managed to get into the more deeply embedded shit, which is a good thing. This simply means that we are completing the rinsing process at a lot faster pace than expected.
The unfortunate part, however, is that the rinse is not over. There are more pieces of shit out there that need to be dealt with. This simply means that we will more than likely encounter a period of choppiness over the next couple of months before any sustainable uptrend takes place.
Choppy movements can become extremely discouraging extremely fast. They frustrate traders and take up the levels of fear without the markets really going anywhere. They also create technical patterns that become extremely difficult to interpret, causing even further confusion, as traders cannot really put together reasonable risk/reward scenarios to trade with.
I think we're in for a period of choppiness with a downward bias over the next few weeks and months. Until then, if you are long investor, I hope you have found a crevasse in the sidewalk to firmly embed yourself into while the high pressure rinse washes away all of those pieces of shit who need to be out of the way before the bulls can walk on their sidewalk with confidence once again.
QQQQ
