Correction Beginning

Could this be the beginning of a correction?

The S & P 500 has been in an uptrend channel since 2009 and when it approaches the upper end of that channel it invariably goes into a correction. From September 2012 through January 2013 the markets were preparing for another move within the trend channel. I use point and figure charts to determine the price objective for that move. (You will find an explanation of point and figure charts by hovering over charts on the main menu)

point and figure s & p 500

At the 1410 to 1450 level you will find 9 boxes (with x’s and o’s) and since this is a 3 point reversal chart you can multiple times 3 and you get 27 points. Since the chart on the right is in increments of 10, you multiply 27 by 10 and your price move objective is 270 points. So by adding 270 to 1410 and 1450 you get a price objectives of  1680 to 1720. The S & P 500 hit roughly 1690  on May 22nd 2013. While it is possible that the markets could move higher in the short term, it seems unlikely. At the top of the point and figure chart you can start to see the development of a trading range between 1640 and 1680. The markets could move sideways for a time creating a price objective for the next move which more than likely will be down, back into the trend channel.

Now a move to the bottom of the trend channel could be fairly significant. If the correction lasts a couple of months the market could slip to around 1500 if it were to move to the bottom of the channel. That’s about a 9% correction from current levels.

As long as the trend channel is not broken the long term trend in the market will remain in place.

bull and bear markets

Chart from Seeking Alpha

Right now the bull market is about 1500 days long.



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