Podcast: 6 Charts Explain Why The Correction Has Started

On August 1st, I made a chart commentary titled Correction Time? Listen to This Grizzly to Decide. I concluded the worst we might see in August was a 5 percent pullback to S&P 2700.

But since then, the market and its sectors have made some decisive moves to indicate the correction is indeed underway and that at least a 5 percent drop from the recent highs is a high-probability bet.

Here are those moves, with all the charts included in the video that accompanies this article:

S&P 500 made a failed breakout attempt above the July 25 high at 2848.

1. Nasdaq 100 leadership, driven by Apple Inc. AAPL and other big-cap Tech in early August, made a lower high.
2. Semiconductor Index rolling over again and losing its 200-day MA, with Micron Technology, Inc. MU leading the way down.
3. Industrial sector rotating sideways as Boeing Co BA drops to its 200-day and Caterpillar Inc. CAT makes 10-month lows.
4. Investors Intelligence Sentiment survey still shows a preponderance of bullish attitudes and positioning.
5. The percentage of newsletter writers calling for a correction remains a tame 26.5 percent for the past few weeks (new data expected tonight from Investors Intelligence).
6. While there are many reasons to support my primary bullish thesis that the S&P will make new highs toward 3000 later this year — such as economic momentum, low interest rates and reasonable valuations — right now, in a seasonally weak period, I have to focus on the risk of a correction where the potential downside in September is probably greater than the upside.

This view is also supported by the market data on mid-term election cycles, which are the worst Q2 and Q3 every four years.

Be sure to watch the video with all the charts to see why, including a detailed look at the Investors Intelligence data.

Disclosure: Kevin Cook own shares of NVDA and MU for the Zacks TAZR Trader portfolio.

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