1. Bull market is up
2. Keeps going up and up
3. As everyone buys
4. Soon the roller coaster starts
5. The bear market shows signs of starting
6. Everyone sells off
7. Soon this will all level out
8. This all equals a market correction
Let us piece this together
Everything in the market is up, There has been a strong bull market, but all of a sudden the roller coaster starts and the bear market creeps in slowly as a sell-off occurs. This up and down cycle continues for a few weeks until the market levels out; this all equals a market correction.
A market correction is a movement usually downwards that corrects overvaluation in the market. This is typically a shorter period where the market will go down and up until it settles and can be the precursor to a bear market. It is important to remember that the market must fall at least 10% for it to be classified as a correction.
This is exactly what happened this week starting on February 8th, 2018 when the Dow Jones fell nearly 1100 points in a single day, then the next day was up a few percentage points and then again fell over a 1000 points.
Why is this happening?
There are a few main reasons why the correction occurred and none they have to do with any fundamental facts, to be honest.
1. Fear of interest rates: There has been a slight fear among investors that interest rates will rise quicker under our new Fed chairmen, and when rates rise, investors often go towards bonds as their returns become more attractive than stocks.
2. Fear of inflation: With unemployment being at an all-time low and with the American economy showing signs of strengths, some investors are fearful that we could be entering a period of inflation.
3. Algorithms: A lot of the automated trading platforms have protocols to sell or buy based on what is happening in the market, Once the market started to head towards a correction the algorithms came in and starting selling hundreds of millions of dollars at once.
What Do Orca’s Do?
The number one thing is to never act on fear or greed, right now there is panic so the common investor is also selling or freaking out, For most of us this is the first real downturn in the market since we have been invested, but it is nothing to be afraid of. This is normal. Below are some tips to follow
1. Don’t Panic: The number one thing is not to panic, in an essence the market is correcting itself back to a few months ago
2. Educate: Understand that this is a correction right now that could lead to a bear market
3. Strategize: Strategize with yourself, or with a professional to know what the right moves for you and your money are
4. Watch: Grab some popcorn; buckle in because the next few months will be a ride.
This again is for educational purposes and is not a recommendation to buy or sell, the number one thing is to empower yourself.