S&P 500 - Has begun a large correction

S&P 500 has begun a large correction 

Why is it, that whenever a large correction unfolds in the stock market, it's somehow manipulated? We never hear the same complaint when the stock market moves higher...

Is a correction always a bad thing? I think not. If you a long stocks, then yes. Unfortunately banks and investment managers has succeded in convincing most investors that a buy and hold strategy is the way to handle the stock market. I would be lying if I said, that this strategy was entirely wrong, because it does work wonders for long period of times, but when the larger corrections starts to unfold, the small investors always get caught and take huge losses, as they can only take so much pain. 

If you look at the long term chart above, you can see that an important bottom was found late 1974 and a huge rally into early 2000 was seen. Between the bottom in 1974 and late 1985 prices where caught in a base-channel, but when the base-channel resistance-line was broken in late 1985 an upside acceleration was seen. As always nothing in the financial markets moves in a straight line and who doesn't remember the price-collapse in 1987? But looking at the chart above, we can see that this prices collapse didn't just stop in the blue air, no it stopped right at the former resistance-line that now acted as support for the next rally higher. We saw the same line act as support in 2009. Will this correction find support on this line again? At this point I have no idea, but at least it gives us a possible downside target. Prior to this major support, we should also expect the former tops near 1,535 to act as support, but if broken the next low to look for is the support-line currently near 931. 

Regarding the chart above, I would like to point out something I find very interesting. If you measure the rally from the 1974 bottom to the 2000 top and add that distance to the 2009 low, you will find that the top seen at 2,137 is an almost perfect one-to-one distance. 

As you can see too, the that the support-line from 1987 that held prefectly in 2002 and was broken in 2008 now act as resistance, when it was hit in early 2015. Finally the support-line that has protected the downside since early 2009 low, was broken in the second quarter this year, so the risk has clearly turned towards the downside... 

 

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Felipe
2014-05-26
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Jonathan
2017-10-24
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Hani
2014-06-06
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Hani