Is This The Stock Market Crash Everyone Has Been Afraid Of?

Hold off for now -- JM

“Crash” is not a word that gets taken lightly in the financial world. When markets crash, people lose jobs, personal savings are wiped out, companies and economies fail, and fear (both rational and irrational) reigns supreme.

Oil spooks stock investors
Over the past few months, oil has experienced a crash in price. The triple-digit prices per barrel from earlier this year are long forgotten now that the price of crude oil has plummeted below $60 per barrel. A drop of over 40 percent in such a short amount of time is a scary thing for oil investors. With the big hit the stock market has taken in the past few days, is oil leading the way for the next bear market in stocks?
Early evidence of a bear market?
The S&P 500 has fallen about 90 points from its all-time intraday high of 2079 in the past seven trading days. This drop represents a decline of over 4.3 percent. A steep dive such as this one is certainly concerning, but it’s nowhere near the fall that oil has experienced. Should investors be worried that this is “the big one”?
A technical take
In the moment, a selloff such as the one the stock market has experienced the past week or so feels scary to investors, but perspective always helps. Drops of five to seven percent are an extremely common phenomenon in a healthy bull market. In fact, the S&P dropped nearly 10 percent off of all-time highs just two months ago before bouncing back with a vengeance.

Numbers to watch
If this market correction is a similar depth to the one in October, investors can expect another 118 points to be shaved off the S&P 500 from this point before the market bounces back. That scenario would mean that support is coming at around 1870, a six percent fall from here.

However, the most concerning event would be if the S&P 500 breaks below 1820, the point at which it found support in October. If it breaks below 1820 this time, that would be a big red flag for many technical traders that a new downtrend has begun.

Is the market crashing?
Luckily, as of now the market is still well within the range of a technically healthy pullback. It’s impossible to predict where the market will go from here, but for those that are wondering if this is the big crash that so many have been fearful was coming for months, the best answer at this time is “not yet.”