Stocks, Oil Falling Hard, Again – Live Blog

You're not going to like this.

Forget all this "is it or isn't it a correction" talk with the Dow. Barring an absolutely miraculous recovery in the last hour, the Dow will join all the major indexes in what's typically called a correction, meaning a 10% from a recent high (in this case, November highs).

It's the second correction in less than six months for the market, and that is something that has happened in only three other years, according to data compiled by Jason Goepfert at SentimenTrader: 1929, 2000, and 2008 (we told you you weren't going to like it). "All of those proceded major bear markets," he noted in a note on Wednesday.

As if anybody needed to be reminded of that.

Now, that bit of rhyming history alone doesn't automatically mean the market is headed for another disaster. 2016 is a different world than 1929, or 2000 and 2008, too, for that matter. Knowing what will happen, though, is impossible. "This is a throw-your-hands-up moment," he said. There are three likely outcomes: an oversold bounce (and he gives this a 50% chance of occurring), another flush lower then a bounce (30%, and seeing as he wrote this on Wednesday, today's selloff could potentially rate), and an "outright collapse" of 5-15% ( and he gives that 20% odds).

David Kotok and Gabriel Hament at Cumberland Advisors looked at Mr. Goephert's data, and drew one overarching conclusion:

"All three extreme events that Jason cites – 1929, 2000, and 2008 – share a common thread: serious deterioration in a sector of the credit markets. There is the source of the pain. The contraction of credit reverses the multiplicative power of credit. Extreme selloffs occur due to credit contraction."

But, and these are our words paraphrasing theirs, this time is different. "The underlying source of the credit that has dragged down the market originates from central banks." But they say "the power of very low interest rates" will continue to drive asset prices higher, and selloffs like the current one "are set-ups for massive bull entry points."

Maybe you'll like it after all.

Source: Stocks, Oil Falling Hard, Again – Live Blog