This Looks Like the End... Of a Very Long Correction
Time for March Madness... An unbiased view... Revisiting a big market call... A familiar setup amid the chaos... What semiconductors tell us about a turnaround... How I'm getting ready to trade it...
Editor's note: Today, we're sharing a special guest essay from Ten Stock Trader editor Greg Diamond...
College basketball is a big deal in North Carolina...
And growing up in Cary (just west of Raleigh), it was like a religion.
That was especially true when the men's NCAA tournament got underway every March... Sports fans know it as "March Madness."
My high-school teachers would close their classroom doors and let us watch a few games on the bulky television sets.
We didn't learn much during that time, but no one complained... We were watching our local sports heroes become legends.
The success of college basketball programs at "blue blood" schools, like Duke University, the University of North Carolina, and Wake Forest University, has been nothing short of amazing.
But despite their dominance over the past 40 years, upsets have become common in the NCAA. They're now one of the most exciting parts of March Madness... Unknown teams take down blue bloods every year with exciting plays and dramatic buzzer-beating endings.
I (Greg Diamond) love upsets... I love it when David beats Goliath.
That's why, for millions of fans (like me), no other sporting event beats March Madness... We count down the days to it each year. This year's tournament begins this week.
Of course, as a big college-basketball fan, I'm biased.
But what I'm not biased about is the stock market...
Sure, as a professional trader, I have to pinpoint what the market is likely to do, or not do. But when things don't go as planned – which happens every year – I adjust to the "market madness." When necessary, I shift gears.
It's my job to make money in any market environment... and help Ten Stock Trader subscribers do the same. Some people rely on fundamental analysis. I use unbiased technical tools to analyze price and time. Today, I'll show you how...
Lately, as you know, the broad market has been down... The Nasdaq Composite Index and S&P 500 Index both entered "correction" territory – down 10% from their previous highs. The "Magnificent Seven" dropped into a bear market last week, too.
Volatility has been high. From the tariff war and related recession fears, inflation concerns, and speculation on what the Federal Reserve will or won't do, there are a lot of market catalysts. There's a lot of fear in the market today, but I see it as an extremely exciting time.
Because what if, despite the headlines and concerns in the market today, I told you we've seen this before... and all of it is a technical scenario that could unleash the kind of market madness that actually favors getting bullish right now, and buying stocks.
One key sector I'm watching, one that you're likely familiar with, tells the story. We'll get to that momentarily. But first...
Let's revisit a bold call...
2022 was a mostly rough year for many people in the markets.
The S&P 500 fell into a bear market as the Fed went on a nearly unprecedented rate-hiking spree in an attempt to fight 40-year-high post-pandemic inflation. On top of all that, the war in Ukraine broke out that February.
Nobody seemed to know what was going to come next in the economy and the markets. Stocks and bonds sold off in tandem, creating a nightmare scenario for strategies like the conventional 60/40 stock-bond portfolio.
By October, with the S&P 500 down roughly 25% from its all-time high in January 2022, many analysts were calling for a recession and for stocks to go even lower. But I was getting bullish. Here's what I wrote to Ten Stock Trader subscribers on October 27, 2022...
Construction-equipment giant Caterpillar (CAT) bottomed out on September 27.
The rest of the market bottomed out on October 13.
Remember, back then inflation was still high. Concerns about a "hard landing" were high, too. Getting bullish was not very popular. In some places, it might have gotten you laughed out of an investment meeting. But I felt strongly about it.
The S&P 500 rose by more than 15% over the next six months to start a bull run, and the U.S. benchmark gained about 70% from October 13, 2022, through this February 19, its most recent all-time high.
My strategy of marrying 'price and time' showed me the way...
By "time," I mean a certain set of intervals – discovered by trader W.D. Gann – that align with important turning points, year after year, throughout market history.
I won't get into all of those details today... But going back to 2022, just know that my strategy was saying the middle of that October was due to be an important inflection point in the market.
Also know that we have another one coming up over the next few weeks.
And then there is "price." By this, I mean analyzing price moves with technical analysis.
Now, technical analysis has no shortage of critics. But many who criticize it haven't put in the real work to see its value.
One aspect of technical analysis that gets plenty of criticism is Elliott Wave Theory ("EWT").
This methodology takes what seem like random stock-price movements and puts them into a set of rules. It's a "road map," if you will, of how a stock will behave over a specific period of time.
It's based on the idea that stock prices move in a series of five "waves."
Uptrends and downtrends each contain three impulsive moves (in the same direction as the prevailing trend) and two corrective waves that counter that trend.
But here's the best part of EWT... It helps with your game plan and allows you to estimate the possibilities. It's unbiased. It's not the only indicator I consider, but it's critical.
Critics will say EWT is subjective because an analyst won't always get the wave count right. That's true, but if you follow the EWT road map, it helps you understand what's possible... as well as where you're wrong.
On October 4, 2022, I shared with subscribers the following update on Caterpillar, one of the stocks I like to track and trade in Ten Stock Trader. The chart is marked by numbers indicating each "wave" of a downward Elliott Wave pattern...
This is the updated CAT chart as of this morning. From the April high, you can see the large Elliott Wave count, marked in red parentheses. From the late August swing high near (4), I've marked what appears to be the fifth-wave move down and within that the sub-count in blue.
There's a downtrend marked with the black dashed lines and a blue 4 near the $175-to-$178 level. This can mark the top of the fourth wave within the larger fifth wave.
What does this mean? We get one more big decline into the fifth-wave low (the red (5)) and into that October 17 time factor.
We got that low... A few weeks later, the chart looked like this, and I told subscribers the market bottom was in, with this analysis...
CAT spiked up today after earnings came out...
CAT is now above its 200-day moving average ("200-DMA") [the red line] and its 55-DMA [the blue line]. The entire sideways/choppy price action since 2021 confirms that this was a correction within a larger uptrend from the 2020 low.
Does this mean that all stocks will go straight up?
No.
We'll continue to see increased volatility... There's no doubt about that.
But with everything I've highlighted recently, the bear market is over. CAT confirmed this for me with the move higher this morning.
While I didn't directly recommend a position in Caterpillar, its short-term price movement told me a lot about the potential long-term direction of the market. It gave me confidence to put on trades in other stocks during a time of heightened fear.
I used a similar analysis to also call "the top" at the start of 2022. In a bear market year where many folks saw their portfolios plummet as stocks and bonds did for much of the year, I made 49 trades – and 40 of them were winners. Even factoring in the losing positions, my average gains were close to 25%.
Five of my 2022 wins closed for triple-digit gains, too... Subscribers who followed my advice booked gains of 116% and 111% in two trades on the VanEck Semiconductor Fund (SMH), a 105% gain in semiconductor play Advanced Micro Devices (AMD), and a 100% gain in the iShares Russell 2000 Fund (IWM).
In recent trading days, I've seen a similar exciting trade setup brewing...
With stocks falling and volatility high, it might feel like March Madness in the market. But like with basketball, I'm excited.
I'm seeing the makings of another significant low based on another important time factor coming up... and the price behavior of another sector that I like to track, which is a key one for the market as a whole.
It's giving me a clue that the sell-off we've seen lately in stocks could be close to an end. Significant lows like these usually come right before stocks rally.
The sector I'm watching is semiconductors...
I talked about this during my free Diamond's Edge Live session last week. What we're seeing is the setup of the end of a very long correction that began in July 2024. That's when semiconductors last made a new high.
When the sector didn't make new highs later in the year with the major U.S. indexes, that was a warning sign of price "divergence," another telling behavior. It warned me that it was time to be careful about the market in general. In fact, we were buying puts (bearish trades) this past December and January as a result of this divergence.
After all, semiconductor stocks – most notably Nvidia (NVDA) – were what had been leading this bull market...
Today, with the sector entering "oversold" conditions (another factor I consider) – along with a trademark Elliott Wave pattern behavior unfolding – this is telling me that the correction is likely close to over.
Here is a chart of the VanEck Semiconductor Fund, going back to last summer's high. I've marked the Elliott Wave pattern over the past few months and where I see it headed. You can see the potential fourth wave up in progress...
From here, we could see this bounce continue this week. Perhaps that's due to some positive reactions to this week's Federal Reserve meeting, though the "why" doesn't really matter to my strategy. Next will come a fifth-wave drop to the bottom by the end of the month, or possibly in April.
This month looks like the higher probability to me for a low. But either way, I'm preparing to eventually get bullish because the signs of a low in this sector (and others and the market as a whole) are piling up. And again, I expect a rally to follow.
This is nearly the same setup I saw in late 2022. It means a stock like Caterpillar (which I outlined earlier, or perhaps Nvidia) may have already bottomed... and all we're waiting for is the major indexes to flush out scared investors. That's when no one is left to sell and the trend can reverse.
I'll only make that call when the time is right, but it looks like we're getting close...
I know the market feels scary today... But this is the environment I thrive in and live for – and it can be incredibly profitable with my trading strategy.
So far in 2025, I've opened 10 trades and closed out eight for an average gain of around 25%. Two of these trades are still open to take advantage of the volatility and the scenarios I see playing out, and I'm preparing to recommend more in the next weeks and months.
Ten Stock Trader subscribers and Stansberry Alliance members, of course, can find my latest updates here. And if you don't have access and want to get started, click here to watch this free presentation right now and learn more.
While watching March Madness play out on the basketball court is always something I look forward to, the current setup in the stock market is even more exciting.
New 52-week highs (as of 3/14/25): Agnico Eagle Mines (AEM), Alamos Gold (AGI), Alpha Architect 1-3 Month Box Fund (BOXX), Berkshire Hathaway (BRK-B), Franco-Nevada (FNV), SPDR Gold Shares (GLD), Sprott Physical Gold Trust (PHYS), and Wheaton Precious Metals (WPM).
In today's mailbag, feedback on Dan Ferris' Friday essay... Do you have a comment or question? As always, email us at feedback@stansberryresearch.com.
"Dan, Always enjoy all the learning. I look forward to Friday's Digest as well as so many other publications. My Alliance membership keeps on giving. Wow. I have positions in 4 of today's 52-week highs in my portfolio. That's all from Stansberry, not me..." – Stansberry Alliance member Jeffrey G.
Good investing,
Greg Diamond
Vienna, Virginia
March 17, 2025