Wall Street veteran Art Cashin is one of those guys you want to pay attention to. He started his career at Thomson McKinnon in 1959 and became a member of the NYSE in 1964 at the tender age of 23. Today he's the director of floor operations for UBS at the Exchange.
There's very little Cashin hasn't seen over the years.
He's particularly good at recognizing patterns that often go unnoticed by younger analysts, especially those grounded in the latest technical data. So when he makes a comment like the one he did last Wednesday about the possibility of another correction, you want to take what he says very seriously for the same reasons I do.
Cashin told CNBC's "Squawk on the Street" that there's probably a "35% chance that we still have to retest earlier lows from a week and a half to two weeks ago." If you're doing the math in your head like I was when I heard him say that, he's talking about a retest of the lows that plunged markets into correction territory.
Most people, including the mainstream media, are focused on the 35% part of what he said or on the absolute numbers associated with a correction – most recently like a Dow at 23,360, an S&P 500 at 2,532, and a Nasdaq that hits 6,630.
What really matters, though, is what Cashin said next.
Pullbacks almost never end in a "V" shape – meaning it's rare to see them run straight higher after hitting new lows – as has happened. More typically, he continued, "you wind up with a little bit of a W."
My research agrees, as does my experience.
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It doesn't matter whether you are talking about a single instantaneous move or a more protracted one. The principle is the same – markets rarely bottom out after just one "test."
Chartists call this a "double bottom" – a term you'll hear now and then on TV or see in various technically inclined trading forums and presentations.
And here's an example of what a "double bottom" chart looks like:
To put that in context, here's what the S&P 500 looks like at the moment:
As you can plainly see, half of the "W" Cashin is talking about is missing – or to be precise, it hasn't formed yet but has a 35% probability of happening.
So, how do you play that possibility?
Most investors won't have a clue, which means odds are they'll get clobbered again as panic sets in when prices roll over.
You, on the other hand, will have an entirely different experience because of what we're discussing today.
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.