Ian Woodward's Investing BlogEarly 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.
sell?
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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