How Far Will This Stock Market Correction Go?

Today, let's put our chartist hat on for a few moments.  If you look at the chart below of the S&P 500, you will see that this correction has done very little to disturb the recent upward trend.  It broke a trend-line last week, but the correction has been relatively minor.  From a chartist standpoint, most corrections "correct" 1/3 to 1/2 of the previous advance.  Since this last rally moved the S&P 500 from 1343 in November 2012 to 1687 on May 22nd of this year, a 1/3 move down would create a bottom around 1573 (we're already at 1588) and a 1/2 correction would mean a drop to 1513.  We've put those two support lines on the chart below.

It is never fun to endure corrections and 2013 has produced a series of conditioned reflexes that make you want to buy any dip, but it does appear that our short-term caution since February will be given an opportunity to get back in gear with our very long-term bullish outlook.  We'll be watching our Psychology Composite very closely to see when that door is opened a little wider.

As we've recently mentioned (you can read last Monday's post by clicking here), many indicators are flashing green lights; however, some very important green lights are still missing, so we don't want to jump the gun. 

Don Hays

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