By Richard Russell in Dow Theory Letters:

We tend to forget that every move, large or small, in the stock market is entitled to a correction. I believe that the rise from the March lows is simply a correction of the huge bear market decline which preceded it.

Normally, a secondary correction will recoup one-third to two-thirds of the ground lost during the preceding bear leg. To refresh your memory, the preceding bear leg carried from 14164.58 on October 9, 2007 to 6547.05 on March 9, 2009 -- a total loss of 7617 points. A one-third correction would carry the Dow to 9083. A two-thirds recoup of the bear market losses could take the Dow back to 11619.

Subscribers should know that following the famous 1929 crash which took the Dow from 381 to 198, a correction took the Dow back to 294 in early 1930. That correction turned the entire investment community bullish. The public piled back into the market. However, the correction had nothing to do with an improving economy. In fact, the great 1929-1930 correction was followed by the greatest market wipe-out and economic depression in history.

Learn more about the excellent Dow Theory Letters here.

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