BigTrends

The stock market correction began in earnest on Tuesday and has continued through the end of the week.  The sovereign debt crisis appears to be spreading to different countries around the world -- or at least there is a fear/perception that it will.  Often, the perception/market reaction to events is more important than the event itself, at least for the short-term.

We've seen a classic "flight to quality" during this pullback.  Gold and the U.S. Dollar have seen a strong rally, as have U.S. Treasuries.  Stocks have born the brunt of the move to safe products, as has Oil.  Take a look at the following performance chart for 2010 for the SPY, GLD, UUP, and USO.



You can see that as of the current prices on Friday, the S&P 500 has now wiped out all the gains of 2010 and is flat for the year.  The fact that the yearly gains were basically erased in 4 trading days is sure to frighten some individual investors.  Many retail investors were already wary of the market from the 2008/2009 crash and yesterday's false-looking huge downprint isn't likely to pacify them.

I would note that the de-coupling of Gold from Stocks, and the flight into Gold and the Dollar is a classic correction safety move.  We've seen this occur time-and-again in the past, although the last couple years were a bit of a different aberration -- and it actually is somewhat of a healthy sign for the world financial state that "normal" kinds of market rotations are back.