Corrections Are Painful

Investors,

This market deserves the benefit of the doubt.

Corrections, by their very nature, look bearish.

Corrections, by their very nature, are painful.

Corrections, by their very nature, are either:

• Short-lived, followed by bullish continuation; or

• The start of a deeper/longer pullback or bear market

Said differently, every bear market starts with a correction, but not every correction is the start of a bear market.

Read that sentence 5 times.

For investors/traders who are solely focused on technicals, they are likely to get bearish during every correction because they are forced to recognize the objectively bearish price action that occurs during a correction.

Why?

It’s impossible to have a correction with bullish price action because a correction inherently requires downward price action (which is bearish).

As a result, the significant majority of technicians will overwhelmingly become bearish during corrections due to the absence of bullish dynamics.

This is where TA in a vacuum has blindspots.

As someone who relies (heavily, I might add) on TA, it’s important to admit and recognize that it has blindspots so that we can find ways to remove those blindspots with supplementary analysis.

This is where market internals come in handy.

This is where sector rotation analysis comes in handy.

This is where market “fundamentals” and macro come in handy.

And I almost hate to say this, but this is where conviction and “faith” come in handy.

However, conviction and faith are only the result of doing the work and having a thorough understanding of what has fundamentally been driving this bull market.

Let’s explore this a bit more, using actual examples…