Investors dreaded the month of October, as most of the major corrections happened in the month of October, thus it got investors and traders nervous in this month every year. After my last post about VIX fear index, it surged to a high of 25 before receding back to a closing of 22. Before my post about VIX index, I did not see any post about using the fear index as a guide. At 22, it is still above the norm of 18-20, so many experts have advised to expect more volatility to come in the market. Apart from the VIX index, there is also another chart one can make reference to, which I found it interesting.
The chart that I am talking about is the 'Proshares Short S&P500', you can find more information from here. In the nutshell, this chart is an inverse of S&P500. Since 2010, it has been testing the resistance from 200MA and have not been successful. This is the third time that it is testing with a huge volume and other indicators are also turning positively. Would it stay in uptrend, I guess no one knows.
But based on history lesson an expert had shared in 1994, he mentioned that in the past 95 years, there are a minor correction of 10% every 2 years and major correction of 20 to 30% every 6 years. Aren't we in the 6 years where we did not have any drastic correction at all?
At this juncture, some of us might not know what to do next for the stock holdings that he/she has. From this clip, you will then know that we should have expected this correction to come, given the historical statistic that Peter Lynch shared and how to handle when it comes. Below are few of the most important points that he shared in the video:
- You need to know what you owned.
- No one can guess the next movement of the interest rate.
- There is always something to worry about, and the key organ in your body is your stomach and not your brain in stock market.
- Based on history, we should expect correction to come once every 2 years and a big decline once every 6 years. And the extract below which he shared about the history on market corrections.
You can view the video here. Below is an extract of part of what he shared about market correction.