The Stock Market Is Now Inches Away From Breaking Down Into A Real Correction

Well, we have seen a few days of wild action in the stock market. Earlier this week Bitcoin blew up to give all of us a warning sign about the markets, but then Wednesday the market rallied into the close after a rough morning to bring some hope to the situation. Of course, then on Thursday, the hopes turned into sorrow in a market that has reached its second-highest valuation in its entire history.

But what is next?

Is this the start of a correction or just some temporary gyrations?

I believe we are heading for a real correction, but the next few days will tell us for sure.

The selling is hitting the Nasdaq harder than it is the DOW or S&P 500, so if the market is going to break down that is where it is going to start. Take a look at the chart.

The Nasdaq now has support at 13000, a level below its 50-day moving average, and that has acted as support since New Years'. So far, since the end of September, the Nasdaq has not yet broken support. It has continued to make higher lows and each low has held up.

That’s the definition of an uptrend. However, if it closes below 13000 then that pattern will be broken and the Nasdaq will begin a new downtrend. We’ll then have to figure out where the next support level is.

I talked about the importance of such trend changes in part II of my video series titled Stock Trading 101. For more on how I analyze the markets grab my book Strategic Stock Trading by clicking here.

I talked with Jim Goddard of about my thoughts on the current market trends and what I expect for the next few years yesterday in an interview posted on Youtube. The sectors leading now are what did well in the 1970s.

Leadership in the markets is shifting out of the big tech stocks that have been so popular to buy for years and into other things such as commodities. Energy stocks like Exxon are now performing better than Facebook and Amazon.

Look at Amazon.

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