The end of the first quarter has brought about more than just performance reports — it’s also highlighted a moment of transition in the markets. While headlines buzzed about a momentum bounce and quarter-end strength, seasoned traders know to look deeper. This time, that bounce was more about window dressing than anything meaningful. Fund managers often shift holdings in the final days of March, June, September, and December to make portfolios appear stronger than they are — creating short-term distortions that shouldn't be mistaken for trend changes.
And that brings us to the real story: the market correction that continues to unfold beneath the surface.
The Cycles Are Clear: More Downside Is Projected
According to current cycle projections, markets are still on course to form an intermediate low around May 5, 2025. Both the long-term and intermediate-term cycles are in decline. While occasional short-term rallies might occur between now and then, they are expected to be technical in nature — not structural, and likely to lose steam quickly.
What's important to understand is that these rallies are not signs of renewed strength but rather opportunities for short covering or brief momentum bursts — similar to what we've seen around quarter-end due to window dressing. Those short-lived rallies often attract hopeful buyers, but without the support of rising cycle structures, they become traps rather than turning points.
This setup bears a striking resemblance to the 2016 market correction. Back then, a strong rally broke down as cycles turned lower. Initial pullbacks were relatively contained, but they deepened as the broader trend deteriorated. There was an initial 10% drop, a retest bounce, and then a final drawdown nearing 15%. The current market is behaving similarly, and given that cycle behavior rhymes more than it repeats, the implications are that this correction could extend well into late April or early May.
Volatility patterns and cycle timing both confirm that the pressure is still to the downside. Investors and traders who get too aggressive too early are likely to get caught in this phase of declining structure. That’s why now is a time to be highly selective, tactical, and most of all — disciplined.
Cash Is a Position — and It’s Powerful
One of the most overlooked tools in a trader’s arsenal is simply staying in cash. When cycles are falling and price action remains unconfirmed, doing nothing is doing something — something smart.
Right now, long positions that are still open should be protected with stops under the 2/3 and 3/5 crossover averages. If those levels are breached, we step aside. Being in cash during a cycle decline doesn’t mean you’re bearish — it means you’re patient. It preserves capital, protects mental energy, and prepares you for the next opportunity when cycle alignment improves.
Cash keeps you nimble. It removes the emotional strain of watching trades grind lower. And when May’s projected bottom begins to form, it allows you to re-enter with clarity, not desperation.
Tactically Deploying Inverse ETFs
For those who prefer not to sit entirely on the sidelines, inverse ETFs offer a structured, tactical tool for navigating corrective phases — but only when the cycles align. These instruments are not for everyone, and they certainly aren't designed to be held long-term. But when used properly, they offer a precise way to capitalize on downtrends while managing risk.
Some of the most commonly used inverse ETFs include:
SH: 1x inverse S&P 500 (non-leveraged, less volatile)
SPXU: 3x inverse S&P 500 (leveraged, highly volatile)
SQQQ: 3x inverse NASDAQ 100 (leveraged, high risk/reward)
Before entering an inverse ETF position, traders should look for:
Clear downward crossover confirmation (price closing above the ETF’s 2/3 and 3/5 crossover averages)
5-day price channels sloping upward on the ETF (confirming positive momentum)
Visualizer projections showing more downside ahead for major indices
Even with these conditions met, traders must understand the volatility profile of inverse ETFs. They're sensitive to sharp rallies and are best used as short-term swing trades rather than positions held for weeks. Leverage compounds both gains and losses, and compounding decay can erode performance if held through prolonged chop.
Risk management is non-negotiable. Use tight stops. Take profits when cycles indicate reversal zones. And always trade within the framework of confirmed cycle structure.
Inverse ETFs are not a workaround for discipline — they require it. Check our post on Portfolio Exposure: Managing Downside Risk Using Inverse ETFs with Cycle Timing for more info.
Cycle Structure Over Guesswork
Right now, the key to navigating this market correction is to stay tethered to cycle structure. Emotional trades, reactionary entries, and FOMO are all traps — especially in a choppy, downward market.
From a technical standpoint, we may see failed breakout attempts, brief short-covering rallies, and plenty of noise. But the underlying trend — defined by the falling long-term and intermediate-term cycles — remains intact. That’s where our bias stays.
Discipline isn’t about sitting still for the sake of it. It’s about waiting for alignment: when timing, trend, and technicals come together. Until then, we stay protective.
Questions About Market Corrections with Discipline
Should I be all in cash or partially hedged?
It depends on your current portfolio setup and trading flexibility. If you're an active trader with no major long-term holdings or tax implications, going to full cash during a confirmed cycle decline can preserve capital and mental bandwidth. But if you're managing a longer-term portfolio — for example, in a retirement account or with embedded tax consequences — partial hedging makes more sense. This can be done by purchasing inverse ETFs sized to offset a portion of your bullish exposure. The most important point is that any exposure you hold should be intentional, not passive. Make sure you know why you're in the trade, how you're protecting it, and when you're exiting.
Are inverse ETFs good for long-term investing?
No. Inverse ETFs are designed for short-term tactical use only. They are not structured for long-term holding due to their daily rebalancing mechanism, which causes performance drift over time — especially during volatile or sideways markets. This effect is more pronounced in leveraged inverse ETFs like SPXU or SQQQ, where the decay can be significant even if the market moves in your favor. The key is to use them when the cycles support a decline, and to exit when that decline has played out or lost momentum. Inverse ETFs are best viewed as tools — sharp when used correctly, but dangerous when used without discipline or timing confirmation.
What happens if the market rallies unexpectedly?
If the market rallies against your short position, or bounces while you're holding inverse ETFs, the key is to follow your stops. Steve’s method emphasizes keeping stops just above the 2/3 and 3/5 crossover averages, which act as dynamic guides for trend shifts. If price action closes above those crossovers, it's a sign that the downtrend may be losing strength. Exiting at that point keeps you from giving back gains or compounding losses. This approach isn't about predicting the future — it's about staying aligned with the current structure. The beauty of crossover-based exits is that they keep you from getting emotionally entangled. They provide a clear, objective signal that protects your capital and clears the way for the next setup.
Is this setup similar to any past corrections?
Yes, and one of the clearest comparisons is the 2016 correction. In that year, the S&P 500 experienced multiple failed rallies followed by a sharp retracement of about 15%. It started with what appeared to be a soft pullback, but when the long-term cycles turned down, that pullback deepened and persisted. We're seeing the same kind of behavior now: a choppy top, volatility spikes, and cyclical signals pointing lower. While history doesn't repeat exactly, these similarities matter because they provide context. They remind us that corrections often unfold in stages — and that patience, not speed, is what ultimately leads to success.
When should I re-enter on the long side?
The best time to re-enter on the long side is when the intermediate-term cycle reaches a projected bottom and turns higher, ideally in sync with the long-term cycle flattening or rising. This dual alignment significantly raises the probability of a successful rally. May 5, 2025, is currently the projected intermediate low — but that’s not a green light by itself. You’ll also want to watch for price to break above the 2/3 and 3/5 crossover averages, and for the 5-day price channel to turn upward. When all those factors align, that’s your moment. Until then, protect your capital, stay engaged through observation, and remember: re-entry doesn’t require prediction — it requires confirmation.
Resolution to the Problem
The issue at hand isn’t market volatility or confusing headlines — it’s how traders respond. The solution is clarity: using cycle timing, price channel behavior, and crossover confirmation to guide every move. Whether that means staying in cash, lightly hedging, or stepping into inverse ETFs — each action must be structured.
Corrections are a normal part of market behavior. They’re not failures — they’re setups. But only if you stay out of their way until the cycles say go.
Join Market Turning Points
Want to stay ahead of the next market move and avoid being whipsawed by headlines? At Market Turning Points, we deliver real-time cycle forecasts, timing insights, and structured trade setups — all backed by Steve’s disciplined approach.
Visit Market Turning Points today and enhance your trading strategy.
Conclusion
Market corrections don’t have to be painful — if you’re prepared. With cycles projecting more downside into May, this is the time to stay disciplined, structured, and patient. Inverse ETFs offer a way to participate with protection, and cash keeps your capital ready. The key is staying out of trouble now so you can step back in with confidence when the next opportunity presents itself.
Author, Steve Swanson