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Correction Cheat Sheet

05/18/2012

Since the S&P 500 Index (SPX) Lehman credit crisis trough at 666.79 on March 6, 2009, the market has experienced 10 corrections of significance within the larger bull trend. The major question for investors now is whether the March 6, 2009 trough at 666.79 traced out its peak on April 2, 2012 at 1422.38. The answer to that question, I suspect, is no.

 

However, the current correction needs to find its trough before we can even consider a return to the April 2, 2012 high. Certainly, given the speed of the decline, it feels like the peak is in.  The market remains in a corrective state and I suspect any revisitation of the April 2 high is a second half of the year event. In the near term, I expect the market is within days of a trough and anticipate a subsequent modest bounce that will position SPX within in a sideways range for the remainder of Q2.

 

For some context, let’s look at the depth and duration of the previous 10 corrections since March 6, 2009. Rather obvious is that in the past 3 years the SPX has experienced a significant Q2 selloff.  In fact, the three longest duration corrections were in Q2.

 

 

1.      June 11, 2009    956.23                         July 8, 2009     869.32                      Duration 19 days         Decline 9.1%

2.      Oct 21, 2009   1101.36                       Nov 2, 2009     1029.39                       Duration 9 days           Decline 6.5%

3.      Jan 19, 2010    1150.45                       Feb 5, 2010     1044.50                       Duration 14 days         Decline 9.2%

4.      Apr 26, 2010   1219.80                       Jul 1, 2010       1010.91                      Duration 48 days       Decline 17.1%

5.      Aug 9, 2010     1129.24                       Aug 25, 2010   1039.83                       Duration 13 days         Decline 7.9%

6.      Feb 18, 2011    1344.07                       Mar 16, 2011  1249.05                       Duration 18 days         Decline 7.1%

7.      May 2, 2011    1370.58                       June 16, 2011 1258.07                       Duration 33 days       Decline 8.2%

8.      July 7, 2011     1356.48                       Aug 9, 2011     1101.54                       Duration 24 days         Decline 18.8%

9.      Oct 27, 2011   1292.66                       Nov 25, 2011   1158.66                       Duration 21 days         Decline 10.4%

10.  Apr 2, 2012     1422.38                       May 17, 2012  1304.86                       Duration 34 days       Decline 8.3%

 

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.