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Lloyd Khaner: Stock Market Correction, Are You Done Yet?

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It's time for stock market investors to prepare a shopping list.

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You asked for it, you got it -- a correction.

We may not hit the official 10%-down definition of a correction in the major indices like the Dow (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX), and the Nasdaq (INDEXNASDAQ:.IXIC), but the broad US market (lingo decoder: the majority of individual stocks) is clearly headed for an official downdraft.

So what happened? You can blame foreign currencies, you can blame China, you can blame Fed tapering... but the likelihood is that you should blame market prices and expectations that got a bit too far ahead of fundamentals. Stocks got too expensive relative to earnings, and now it's show-me time: Show me good earnings and believable earnings estimates and a stock price will hold or rise. If you can't, it's time for a stock price "pause" (lingo decoder: stock price will drop until value emerges). Hence, we are likely in a more normal stock market environment than we have seen since 2004 or 2005.

So what do you do? Get your shopping list out and ready because that stock you wanted to buy for the last 13 months may just come into a valuation range that you find attractive. Be patient and realize that not everything you want will drop into your basket. Will 2014 be a year where you can actually "invest"? I don't know, but it's nice to think about.

So is the market correction over yet? Maybe it is, but probably not.

Here's a quick look at the worries facing stock market investors. Click on the image below for an interactive version of this week's Wall of Worry, or scroll down for the text-only version and an explanation of how the Wall works.



QE: "So long, farewell, auf Wiedersehen, adieu!"

UNEMPLOYMENT: France's unemployment rate seems to be stabilizing...as it hits a new record high of 11.1%. Soupir...

INVESTOR SENTIMENT: "You've lost, that lovin' feeling, oh that lovin' feeling..."

EUROPEAN ECONOMY: Deflation fears in the air. What will they do, what will they do?

HIGH-FREQUENCY TRADING:
Lloyd: HFT volumes surging in currency trading.
HAL: Who needs stocks when you can trade currencies around the clock?
Lloyd: I hear you, but stocks are bought with currencies.
HAL: Sixty-four-ounce bottle of bummer for you.
Lloyd: Appreciate the empathy.

CHINA: With a nod to the Bee Gees classic, "Do it light, taking us through the night, Shadow Banking, China please do it right..."

EXTENDED UNEMPLOYMENT BENEFITS: Going, going...

BONDS: Making a resurgence as a viable asset class, though no one will admit buying or holding them.

RETAIL SPENDING: Excluding hats and gloves and coats, polar-vortexed Americans aren't spending on many other little retail goodies.

CONGRESS: They members are very quiet all of a sudden. Making me very nervous all of a sudden.

US ECONOMY: The ABI (Architectural Billings Index) droops for the second month in a row. Hard to make a case for constructing new buildings when we aren't creating a lot of jobs for folks to fill them up with.

ECB: If the eurozone economy stalls out then everything is on the table to help it, including negative interest rates. But first, what the heck are negative interest rates?

DEBT CEILING: Signed, sealed, but yet to be delivered.

EARNINGS SEASON: Uninspiring. But then again, what isn't nowadays?

EMERGING MARKETS: Otherwise known as "Submerging Markets." Cheap shot, but I had to take it.

CURRENCIES: Raising interest rates in Turkey and India as cardboard cutouts of Ds and fences are lifted high to the chant, "Defense! Defense!"

MINIMUM WAGE INCREASE: If it happens it may take a bit out of corporate bottom lines and it may not. Might as well fret about it until we know for sure.

VOLATILITY: It's baaaaack...


What Is Lloyd's Wall of Worry?

by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money
managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.
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Positions in SPY, DIA, QQQ, GLD, TBF, VGK, FEZ, EUO.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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