Coaches Round Table - How often does a correction in the stock market turn into a recession?

How often does a correction in the stock market turn into a recession?

I'm interested in "leveraged indexes" (ex., SSO) that imitate the general movement of the stock market with increased power. However, if the market plummets, I'm twice as in trouble as I'd normally be. I know that predicting the market is a difficult if not impossible task, but are there any early "warning signs" to warn me of an upcoming recession? Historically, how many times have corrections (10% drop in the market) turned into a true, full-blown recession (20% drop or more in the market)? Thanks for your help! Correction: By "recession" I meant a bear market. Sorry for the confusion of terms.

Public Comments

Bad move stevie. The correction we had in late feburary has not gone to recession. If you risk it no more than 5% of your TOTAL portfolio should be in this high risk venture.
If you buy the futures instead of the ETFs you can get an even better exposure if leverage is what you're looking for. First of all, stock market and recessions are separate. Recessions means that the GDP has shrunk for 2 straight quarters. Stock market crashes come for many different reasons, that if people knew they could make millions :) Basically at some point it gets out of hand(like China) and it crashes. My opinion about the matter is twofold: 1. you don't need leverage. Leverage is for those who know what they're doing. What you need is capital protection. 2. We've had a 4-5 year bull run and it might look like it's run out of steam. The next month is key and even then it won't last forever.
According to the "rules" the market will correct between 0 and 147 times in a specific time allocation. There is no way however to judge the time formula. Then when it comes to a 20% drop.... most professionals get killed in them also. A 20% drop means you have to earn 40% to break even. Make this a small part of your "asset allocation", add a "stop loss" and you may or may not do well.
If you want to invest in the stock market with leverage, you should invest in DIA options instead. That gives you much much more leverage BUT completely no risk if the stock market should plummet into a bear market by using a strategy we call a Short Bull Ratio Spread. Please see full details at http://www.optiontradingpedia.com/free_short_bull_ratio_spread.htm .