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Corrections

February 17, 2012 – 6:14 pm

As we move into a long weekend we have had a very strong rally from lows made in the summer. We did have a couple of corrections along the way. Six days in November the S&P500 fell from 1258 to 1158, a hundred point fall or in
other words a little over 7%. Then in December we had another smaller correction of about half that amount. Since then there have been no other corrections.

Corrections are a healthy part of a bull rally and without them the market tends to collapse after stretching too far. This is also true for bear market collapses. They tend to snap back. It has everything to do with human nature. Greed is a powerful emotion and when everyone feels they are missing the boat while all around them people are making money the emotional investor jumps in. That same person jumps out on fear when the market goes down sharply.

So we are due for a correction, in fact we need a correction and the further the market stretches up the deeper the correction will be. The market will do what it wants; your job is to be prepared. There will be some excuse as to why the market corrects when it does but in truth the real reason is that the market is over extended.

How can you be prepared? Take some profits, put on some defensive positions and produce some cash.

Good Trading
Steve Peasley

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