Market Overview

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. (NASDAQ: 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. (NASDAQ: MU) leading the way down.
  3. Industrial sector rotating sideways as Boeing Co (NYSE: BA) drops to its 200-day and Caterpillar Inc. (NYSE: 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.

Related Links:

The Lira's Rally Halted By U.S. Threats: 5 Things The Global Markets Are Talking About Today

If Inflation Rips Higher, Consider This Sector ETF

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: contributor contributorsNews Futures Technicals Markets Media Trading Ideas


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