So what does this tell us?
The market has spent a significant portion of its long-term upward journey below its previous high. A 5% or even 10% correction isn't necessarily something unusual or a sign that the trend is broken. It's simply part of how markets normally behave.
What is actually rare are very deep drawdowns, like 30% or 40%. So the goal shouldn't be to avoid every correction. If you try to avoid every drawdown, you'll probably miss a large part of the market's upside as well.
The more important question is: Is this just a normal correction, or has the market entered a meaningful change in trend?
The problem is that we usually can't answer that with certainty in real time. When the market is down just 5% or 10%, it could still be a normal correction—or the beginning of a much larger decline.
So rather than looking for a point where we can be 100% certain about what's happening, we should think in terms of probabilities.
We can size our positions so we can tolerate normal corrections, keep enough liquidity and a plan for worse scenarios, and instead of reacting to every decline, look at earnings growth, valuation, and macroeconomic conditions alongside the chart.
The goal isn't to predict every correction. It's to build a portfolio that can survive the uncertainty.
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@RezaMacroEdge
2August 23, 2026 26
