After slumping on concerns regarding government debt levels, monetary tightening in China, and the sustainability of the global economic recovery, stocks have bounced. The Dow Industrials are about 4% from their Jan. 19 closing high of 10,725.43, while the Dow Transports are roughly 6% from their Jan. 11 closing high of 4,262.86.
At their lows earlier this month, the Industrials had retraced about 20% of their March-to-January advance, while the Transports had retraced about 22%. Significant market corrections typically retrace 33% to 67% of the preceding advance, so it would be premature to label the January highs as significant. However, the longer the averages remain below those highs, the more significant the points will become.
For now, our three-part advice for subscribers is unchanged: (1) watch the averages; (2) hold 20% to 25% of equity portfolios in a short-term bond fund; and (3) look for buying and selling opportunities one stock at a time.