Stock Market Update: Support Broken Indicating Further Correction

If you read this past weekends newsletter, there was a level to watch on the S&P, and that level was 1182.  The trendline had already been broken, so we were looking for confirmation with a move below that level.   The broken trendline and move through horizontal support indicates a move to the dominant trendline at approximately 1145 (this level will rise over time, and is currently just above 1140).

Tuesday saw a drop below our mark, closing out the day at 1173, a -2.38% drop.

Therefore, at the moment it appears we have entered a correction in a bull-market from March, ’09.  The target is the area mentioned above, with a further move indicating a full reversal.  This comes with a  caveat though, some penetration of the dominant trendline is fine.  The reason is this: during this entire rally the largest pullback has been 105 points.  With a recent high right near 1220 a pullback of the largest magnitude we have seen so far would take us to 1115 (approximately).  Therefore this method provides us with reference for when we can be fairly certain a full reversal is coming.  A drop beyond 120 points (small buffer added) from the highs indicates something is wrong as at this stage in a rally pullbacks are rarely larger than the initial pullbacks were unless a further downside moves are coming.  It is a number to keep in mind, and also a method which can be used to gauge market market strength (or lack of strength) in late stage trend pullbacks.

All is not doom and gloom though as the sell off Tuesday is only day.  Yet pressure does seem to be mounting.  A rally back above 1182 would be the first positive sign, but does not indicate a renewed rally.  Given the position of the market currently, the trend can only be solidly affirmed if there is a close above the swing highs.  The market is well off this point at the moment, and thus having profits off the table is not at a bad choice here.

Always trade according to your own laid out trading methodology as this does not constitute advise on how you should trade the market.  The prices above are simply technically significant levels which should be paid some attention..

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