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Anatomy of an Historic Correction

August 18, 2007



This is an abbreviated sample of a comment posted for subscribers



Now THAT'S what I call a correction.


In the last longer-term comment, from July 22nd, we went over what has historically happened when the very smallest of options traders get a bit too ahead of themselves.  When they become excited about the potential for future upside, then the market has a nasty habit of giving them just the opposite.


She certainly obliged this time around, though what we've seen is well beyond what I initially thought would likely happen.  Small options traders were too optimistic, yes, but many of our other guides were not giving warning signs of such a substantial correction.


The past couple of weeks, and especially the past couple of days, have provided ample evidence of extremes in emotion.  I've detailed many of them in the daily notes, and now I want to provide a bigger-picture summary of what's transpired.


The chart below shows the important highlights from the past few weeks.  Most of the major extremes are noted on the chart based on the day they hit.  It's a lot if you try to take it all in at once, so it's probably best to just start at the left-most bar and work your way day by day to the right.




It's kind of pointless to go over each day individually and re-iterate the stats and historical precedents for each of the extremes.  They're all detailed in the Daily Snapshot archives, so please feel free to browse through them and pull up any day where you want more detail.

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