Market Correction Coming: Let the Decline Play Out While Cash and Inverse ETFs Do the Work
- Apr 7
- 6 min read
With both long-term and intermediate-term cycles continuing their downward trajectory, the market remains in a vulnerable state. According to current projections, we may not see a meaningful low until between April 11 and April 15, which leaves room for further downside. In times like this, trying to force trades can be a costly mistake. Instead, the strategic move is to let the decline play out while using cash and inverse ETFs as tools for capital protection and profit generation.
Understanding the Current Cycle Environment
Cycle analysis provides context that most traders miss. While the headlines may shift daily, the market’s rhythm follows patterns of expansion and contraction. Right now, both the long-term and intermediate-term cycles are contracting—pointing lower. This dual-cycle decline tells us two important things:
The primary trend is bearish.
Intermediate rallies are more likely to fail.
The 2/3 and 3/5 crossover averages are also confirming the weakness. As long as price action remains below these levels, we should view any short-term rally as part of a larger corrective process—not the beginning of a new uptrend.
This type of structure doesn’t reward aggressive long trades. It rewards patience and discipline. As Steve often teaches, trading is about being aligned with the market’s underlying cycles—not fighting them.
Market Correction Risk: How Deep Could It Go?
As of now, major indices have corrected roughly 17% from their highs. That may seem significant, but when you overlay the time and distance remaining on the current cycle path, a 20–25% decline becomes increasingly probable.
Looking at the weekly SPX chart, the picture becomes clearer:
The maroon-colored drawdowns from past 20%+ declines show how frequently these deeper corrections occur during bear phases.
The 40-week (200-day) moving average is just now being tested—and could soon be breached.
If this technical line is decisively broken, it could trigger further liquidation from fund managers and institutional algorithms. Sentiment, already fragile, could worsen quickly. In these moments, having a game plan in place is essential.
Why Cash Is More Than Just 'Sitting Out'
Cash is a position.
While many traders feel uncomfortable sitting in cash—especially when they think they “should be doing something”—Steve’s approach reminds us that waiting can be an active decision. If there’s no setup that meets our criteria (aligned cycles, timing confirmation, and crossover strength), then we do nothing.
Being in cash allows you to avoid drawdowns, stay mentally sharp, and be ready to strike when a new swing low and reversal are confirmed. During bear markets or correction phases, capital preservation is often your biggest edge.
Inverse ETFs: Trading the Downside With Structure
For those looking to be more active, inverse ETFs can offer an effective way to capitalize on downside moves. These instruments are designed to rise as the market falls. Common examples include:
SH – Inverse S&P 500 (1x)
SDS – 2x inverse S&P 500
SQQQ – 3x inverse Nasdaq 100
These are not long-term holds. They’re tactical tools that move quickly—and can reverse just as fast. That’s why Steve’s method of using cycle projections and crossover averages is critical. You don’t just guess. You wait for confirmation:
Momentum peaks and short-term cycles begin to roll over.
The price of the inverse ETF holds above the 2/3 and 3/5 crossover averages.
The long and intermediate cycles are both in decline.
That’s your setup. You enter with a tight stop, and if the move plays out, you ride the wave. If not, you exit quickly with minimal loss.
How This Fits Into the Larger Picture
While it’s tempting to panic during rapid declines, Steve’s cycle-based approach brings clarity. The current drawdown is consistent with prior correction phases that occurred within falling long-term cycles. We’ve seen this structure before—like in 2016, when the market fell over 15% in stages before finally bottoming.
That year, the initial drop wasn’t the end—it was followed by a failed rally, another leg down, and then a bottom that led to a major bull run. Today’s projected path shows similar dynamics: a possible bounce into early April, followed by a deeper correction into mid-April before we reach a sustainable low.
This is not a time to be optimistic for the sake of optimism. It’s a time to stay vigilant and let the cycles lead your decision-making.
Check our post on How Profitable Is Swing Trading? Only When Cycles, Timing, and Price Are Aligned for more info.
Answers to Common Questions About Market Correction Coming
Should I sell all my stocks during a market correction?
Not automatically. The decision depends on your strategy and your time horizon. For long-term investors with diversified portfolios and no immediate cash needs, staying invested might make sense — but even then, selective trimming and hedging are prudent. For active traders following Steve’s method, the priority is to protect capital and follow the cycles. If long- and intermediate-term cycles are falling and price is breaking below crossover averages, that’s not a time to hold and hope. That’s a time to reduce exposure or hedge using inverse ETFs. The goal isn’t to predict the exact bottom — it’s to stay aligned with the trend and only re-enter when price and timing confirm it’s safe to do so.
How can I profit from a market correction?
You profit the same way you would in a rising market — by trading with the trend. When the cycles are falling, inverse ETFs like SH, SDS, or SQQQ become powerful tools. These allow you to benefit from downside moves without having to short individual stocks or abandon your core holdings. But the key is confirmation. Steve’s strategy is never about reacting emotionally to headlines — it’s about waiting for price to hold above the 2/3 and 3/5 crossover averages on the inverse ETF, after a peak in momentum is identified. That’s when you act. Not before. And always with a stop in place.
How long do market corrections typically last?
Corrections can be short and sharp or long and grinding. What matters more than duration is the alignment of cycles. Steve’s current projections call for a meaningful low around April 11–15, but that doesn’t mean the decline will be over in a day. There can be bounces, retests, and new lows within that window. It’s a process. Historically, when both long-term and intermediate cycles decline together, corrections last weeks to months. That’s why we let timing and price structure tell us when it’s safe to step back in, rather than trying to pick bottoms too early.
Is now a good time to buy the dip?
No — not if you're using Steve’s methodology. Buying the dip works only when it aligns with cycle bottoms and technical confirmation. Right now, cycles are still pointing lower. Any rallies before the next projected low are more likely to be short-lived counter-trend moves, not the start of a sustained advance. Buying too early risks catching a falling knife. Instead, wait for confirmation that the bottom is in: intermediate cycles turning up, long-term cycles stabilizing, and price reclaiming key crossover levels. Until then, patience is your most profitable move.
What is the safest strategy during a correction?
Staying in cash and using tightly managed inverse ETF positions when cycles confirm downside momentum. Cash protects your capital and allows you to stay emotionally and financially ready for better opportunities. It keeps you from taking unnecessary losses and preserves mental clarity. Inverse ETFs, when used with structure and discipline, allow for selective downside trades without overexposure. But they must be treated as short-term tactical tools, not buy-and-hold investments. Steve’s philosophy centers on alignment — when trend, timing, and technicals are not in sync, the safest position is often no position at all.
Resolution to the Problem
The temptation to act emotionally during corrections is high. But trading from fear or hope rarely ends well. Steve’s system removes the guesswork and helps traders focus on what matters: cycle direction, price confirmation, and risk management.
Corrections are part of the market cycle. They’re not to be feared—but they must be respected. Letting the decline play out, protecting capital, and waiting for structure to return is how profitable traders stay in the game.
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Conclusion
A market correction coming is not the end—it’s an opportunity. But only if approached with discipline and structure. With cycles declining and technical conditions weak, this is not the time to guess.
Stay in cash. Hedge selectively. Trade inverse ETFs only with clear confirmation.
That’s how we protect capital. That’s how we prepare for what’s next. And that’s how we trade with confidence—not fear.
Author, Steve Swanson