They say 99% of arguments on Twitter would end immediately if both sides just admitted they’re operating on different time horizons.
It’s true — and not just on social media. It’s true in markets and, honestly, in life too.
Knowing your own time horizon, and realizing that it’s different from everyone else’s, is critical. It should be personal. Investing, at its core, is a selfish pursuit. You have to do what’s best for you, not anyone else.
At TrendLabs, when we talk about this current market correction, we’re doing it in the context of much larger, longer-term uptrends in equities.
If you’re a long-term investor, you’re probably laughing at anyone calling this a “correction.” Most indexes are still hovering near all-time highs.
But zoom in — like we’ve been doing the past couple of weeks — and you’ll start to see some cracks forming.
Overhead supply caused a traffic jam near current levels.
Eyes on the Little Guys
Here’s a look at the small-cap iShares Russell 2000 ETF (IWM) still grinding against that wall of resistance from last year.
I wrote about it last week:
How quickly small-caps can absorb that supply and break out to new all-time highs will tell us a lot about the market’s underlying strength. A fast recovery here would be impressive. But more likely, this takes time — and how much time will say a lot about the health of this bull market.
Well, here we are — still wrestling with those former highs:
Remember, it all comes back to time horizon. I’m calling this a “correction” because the market is simply digesting those massive gains from the spring.
How long it lasts? Anyone’s guess.
What we do know is that any weakness we’re seeing now is still happening within the context of a much larger uptrend on higher time frames.
Don’t lose sight of that — this is still a massive structural uptrend, with fresh all-time highs confirming it:
One key culprit remains the banks. Just yesterday, Regional Banks broke down to new 52-week lows relative to the S&P 500:
That’s a problem — especially for small-caps, where more than 250 of these banks live inside the Russell 2000.
If small-caps are going to finally clear those highs and stick the breakout, it can’t just be Biotechs doing all the heavy lifting. The Regional Banks need to stop collapsing first.
Where Do Things Get Worse?
Every major bear market begins with a small correction. But not every small correction turns into a bear market.
So where’s the line between a healthy pause and a real problem?
For me, it always comes back to one simple rule: “Don’t fight Papa Dow.”
With the Dow Jones Industrial Average still holding new all-time highs, it’s hard to get overly bearish. But if we start breaking below 45,000, that changes the picture:
A Dow below 45,000 would mean it’s back under last year’s highs — the same kind of resistance zone that’s been frustrating small-caps lately.
But this isn’t the Russell 2000. This is Papa Dow — the adult in the room. Potentially losing the small-caps is one thing. Losing the Dow would be something much bigger.
Corrections are part of every bull market. Think of them like a runner catching their breath. You can’t sprint forever — not at full speed.
Sometimes you slow down, breathe, grab some water… and then take off again.
Markets are no different. Go back and study every bull market in history — you’ll find plenty of pullbacks along the way. Big ones, small ones, and everything in between.
This one might be short and sweet. Or it could take longer to shake out.
Either way, we’ll adapt — and we’ll keep leaning on the bigger trends, which remain higher for stocks not just in the U.S., but around the world.
While U.S. indexes pulled back yesterday, markets across Europe, Asia, Latin America, and even Africa all closed higher.
That’s not the kind of price action you see in a global bear market.
No one’s talking about that part — but they should be.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs