Nice little 200 point drop in the Dow yesterday, however it looks like it is being contained. The depth of a correction tells us something about the underlying strength in the market. So far this correction has been a one day event. I would expect that we will continue down and test the most recent support point at 2400 on the S & P 500.
One hedge to a market decline is called the Market Volatility Index (VIX). This index has very rarely traded below $10 in the last 8 years. There have been some good upside moves in 2010 and 2012 when the market declined over a number of weeks. But over the last 4-5 years we have seen 1 or 2 day advances in the VIX, and subsequent retreats back to the $10 area.
Remember, as the market reaches new highs, not all stocks will participate. The markets are being dominated by a fewer number of stocks and it is imperative that you have a plan to identify which of your stocks need to be sold before the market actually does top.
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