There is little that I can say to quell the panic that many of you may be experiencing. I guess you could say that the complacency that we were experiencing is now a thing of the past.  I mentioned the possibility of a correction on January 23rd in this articleI also did a follow up indicating that the markets could correct back to three different levels in this article

The markets have a couple of ways to move on from here. One scenario has the markets testing the 200-day moving average, which is currently around the 2500 area of the S&P 500. Keep in mind that I am viewing this market move as merely a correction and not a bear market.

Markets typically take time to build a top. This allows the professionals to distribute their stock and that can take some time. Markets just don’t hit new highs and then go immediately into a bear market. One caveat would be the involvement of the Fed in this bull market. They moved to control interest rates, provided quantitative easing and bought stocks for their own account. Does this change the game? Perhaps, the Fed had never taken such actions in the past and the ramifications are really not known. I’ll assume that is not the case and give you my thoughts on how this all may pan out.

Here is what it would look like if we were to test the 200-day moving average:

The other scenario would suggest a period of volatile consolidation over the next week or so. This would solidify a bottom and give the markets a launching pad for a move higher.

Once we find a bottom through either a shakeout or through consolidation we should get 14-20 weeks of rally, or we get the final bubble. Some suggest that we will just get a continuation of the bull market for many more years. I just don’t think we will get a multi-year bull market after the insane monetary policy over the last 9 years. I think there should be consequences, and like the last several times the consequences have been bubbles.

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