Equity correction may be precursor to larger one to come



S&P 500


The current daily correction over the past month has been just that: a daily correction. It has brought the indexes into comparable corrective levels as the correction in late February to mid-March, leaving it testing weekly support levels this week. Many are speculating that the market still has another run in it and I have to admit that the potential is definitely there.

The weekly S&P 500 is one place to look to for guidance (see chart below). Since last fall, it had two major swings higher with a minor correction in November. It hit resistance on these waves of buying in February and established a larger correction, followed by a 2-wave push to the highs this month. it is very common for a third push to follow, but unfortunately for the bulls things tend to get very sketchy after that point. A third high essentially creates a Momentum Reversal pattern on the weekly time frame. While the length of the channel shift at highs will be shorter than ideal for a strong trend reversal, it can easily take the market into a longer congestive phase on the monthly time frame.

S&P 500 Weekly

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