S&P 500 - 4 largest correction since 2018 – Outlook not good
Updated
Looking at the last 4 largest corrections of the S&P does not provide a good outlook for the S&P. Please excuse the mess on the charts.
I think the pattern is pretty clear. Once a down channel is established after a major rally, the final correction will complete inside that channel, typically on the left hand side. The more the correction counter pushes to the right, the more drastic the drop at the end. In addition, fib retracements are all greater than 0.382. The larger the rally the larger the correction. The corrections seem to almost exactly hit common fib retrace levels (0.414, 1.414, 0.382, 1.146). Given the massive rally for the S&P, I can only assume that it will be a larger correction (not 0.386).
S&P has only hit a little over 0.236 retrace. If the minimum retrace is only 0.383, then we are still looking at June lows around 3000 range.
So far, the S&P has hit a retrace of 0.618 of the wave from June. If S&P retraces 0.618 of the full rally, then we are around 2700. The other fib level near there are 0.5 and is around 2890.
Opinion: The only way this correction pattern does not come true is if we are really in a new bull market and we are just getting started. If we are in a bull, then it will be a bubble bigger than the dot com, because IMO the true pain of the COVID recession has yet to come (bankruptcies, foreclosures, etc.). Any rise in stock prices is not going to be connected to reality after this point.
Not trading advice, but hope it helps. Good luck.
I think the pattern is pretty clear. Once a down channel is established after a major rally, the final correction will complete inside that channel, typically on the left hand side. The more the correction counter pushes to the right, the more drastic the drop at the end. In addition, fib retracements are all greater than 0.382. The larger the rally the larger the correction. The corrections seem to almost exactly hit common fib retrace levels (0.414, 1.414, 0.382, 1.146). Given the massive rally for the S&P, I can only assume that it will be a larger correction (not 0.386).
S&P has only hit a little over 0.236 retrace. If the minimum retrace is only 0.383, then we are still looking at June lows around 3000 range.
So far, the S&P has hit a retrace of 0.618 of the wave from June. If S&P retraces 0.618 of the full rally, then we are around 2700. The other fib level near there are 0.5 and is around 2890.
Opinion: The only way this correction pattern does not come true is if we are really in a new bull market and we are just getting started. If we are in a bull, then it will be a bubble bigger than the dot com, because IMO the true pain of the COVID recession has yet to come (bankruptcies, foreclosures, etc.). Any rise in stock prices is not going to be connected to reality after this point.
Not trading advice, but hope it helps. Good luck.
Note
For context since 2008. Note the bearish divergence in the 1M time frame.Note
One thing that I can't quite wrap my head around is the MACD at the 1M time frame. That value is still up there around 150. Right around ATH for that indicator. The March crash only brought it down to 100. The 2009 crash went to -100. Markets always revert to the mean, which means at some point in the future something epic is going to happen to the market to get it back down to the MACD's negative range. It has been positive since 2011. That means either a crash that is 2-3X bigger, same depth but 2-3x longer, or 1-2 years of slowly chopping our way down (2008-2009 style).
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