Ian Woodward's Investing Blog

Early Warning Signs for a Correction

Michael Kahn of Barrons asks:

If I am not mistaken, there was a pheonix last week followed by a eureka. Since we are  25% to 30% into a rally, a eureka is supposed to be exhaustive even w/o the phoenix.


Michael:  I wish it were that easy, but you have it “half-right”.  An Eureka Signal will indicate the Bulls have irrational exuberance.  Where it happens is the clue.

1. Several Eurekas in a row after a Base Low is a strong signal that a new Bear or Bull Rally is starting.
2. However, a Eureka late in the Rally also signals an Early Warning Sign that the Rally is probably over for now and a correction is due.  However, that alone does NOT constitute a SELL signal.  I have attached a PowerPoint slide below as to the entire rationale.  You heard it here first! 


Best Regards, Ian.

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