What Does a Market Correction Look Like for the S&P 500?

As the S&P 500 and Nasdaq 100 indexes have pounded away at new all-time highs basically every month in 2021, investors are left to wonder when a market correction may actually be coming. Here we'll discuss the three types of market corrections, and what a further pullback from current levels may look like!
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Dave helps active investors and financial advisors make more informed investment decisions, inject more discipline into their investment process, and enrich relationships with their clients. Feel better about making better decisions!

He's also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research and consulting firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients.

Dave was previously a Managing Director of Research for Fidelity Investments in Boston, a Past President of the Chartered Market Technician (CMT) Association, and started in the financial industry just after the March 2000 market top at Bloomberg in New York.

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#MarketMisbehavior #MarketCorrection #StockMarket

[aidan.g.harbach]

Pattern recognition, stock picking, when to buy or sell, what to do when the market is crashing? A few important things to answer before every newbie should ask before getting placing a trade without guide. I was lucky to have hired the services of a pro when I did. I've been receiving so much knowledge as well as returns. Now I'm more into six figure investments this year.

[HardikRaval]

Hey Dave, loving your new channel and videos. Next video idea which is timely. When to get out of your long position? Is it break of 21 d, 50 d, 200 d? RSI going below 40 = transition to bear phase (learned from you)? MACD below 0? Break of a well established support? What would great DK do? I know you would say what is your time frame. I'm assuming your typical viewer is a trend following mid term trader - 30 days to 90 days. I know you have covered this in multiple videos but a focused video, which I can bookmark, would be awesome. Thanks in advance.

[alicsulb]

Someone posted this video in the chatroom of the service I am subscribed to. I find this video very helpful to actually understand the different scenarios and possibilities that are hanging over the market. I personally from past experience within the past 10 years of being involved in the markets, don't like the fact where stocks in general keep going higher and higher disregarding the risk factors that are present within the economy(Inflation, Covid, Bond Yields), that is where FOMO maybe kicking in and what typically happens after, is a pullback/correction. In my opinion given the fact that in 2019 S&P rose 30%, and 15% in 2020, and 17% so far YTD in 2021, I expect the market to be very cautious going forward given the fact that we have several major risks hanging over the shoulders of the global economy. Therefore we will pullback, it's inevitable but to what extent we pullback is yet to be seen.

[cbpuzzle]

Linear regression from 2009 lows to 2021 says we are +4.5 sigma. An SPX at 3100 would be a -2 sigma event and right back at pre-pandemic highs. They have truly engineered prosperity.

[grand]

Great video. Do you have something covering the basics for beginners 😃

[efanjohnson]

Awesome vid Dave. Cheers for the insight.

[ClassicalFanNL]

Most likely 5% - 10% correction unless unexpected event hits the market. It all depends on the big tech stocks really.

[koenigsgambiter]

Very good and structured analysis. Well done! Thanks for sharing.

[macdeutsche]

pull back to 2020 junish has happened in many stocks last week. Your 3rd option depends on FAAG+ MSFT. It's creeping up to many stocks and a matter is whether they hold up. They will probably do. But you never know. If apple misses, MSFT misses... then we go there. Anyhow, pull back is due. At the moment, I will go with 2nd.

[caseyshatraw]

On the 1-HR Chart, the 200 Day Simple Moving Average can be a great indication if a correction will continue or if it’s coming to an end. The 200 SMA tends to act as “ceiling” of Resistance during a correction, and it tends to be a strong “launch pad” for an up trend. Keep a close eye on the 1HR chart of SPY next week, and how it behaves with the 200SMA.

[ltchuan]

a lot of cash move toward defensive sector ... likely to have a pull back in S&P.

[MSINFONOR]

Great analysis - thanks. When do you think the market will take this into consideration: drought/water shortages - real inflation (not FED BS) - housing bubble- Delta variant - tapering - money printing that is out of control…?

[orenpbeta]

Valuable work. Thank you. I choose scenario 2.5 rather 1.5. I believe that the delta infections in Europe will alert investors in US, combined with high inflation mark (possible small size tapering) brings the market in to a correction of 10-20 percent. Deflationary forces will exist but may take time to manifest.

[geoffwitt]

I am still confused on whether I should be watching the exponential or simple moving averages. For small corrections, I see commenters using 18, 20 and 21 day as support. Which of these do the algos and big funds take more seriously?

[peterlin]

We've had a #3 scenario at least once a year and a lil over due.

[robbiejones]

Time will tell ! With PEs of 39 and signs of slowing, I {think} it will be some where between 2&3, but over a period of and choppy. As I said Time Will Tell ! Be nimble ! HEADGE

[pearhalls]

David, Simply Brilliant illustration of market correction. Pop bubble is painful. It is happening till July 31st. Green side after the Fed meeting. No interest rate increase till 2024, no tapering till 2024.😆

[lakshmiprabhakarkoppolu]

So About bullish market predictions, you are 95% correct.

[cassandramiller]

I think it will test the 1 hour resistance line that has formed and tap 4280ish.

[bssb]

Option 4 could be a drop to feb 2020 high of 3400. About 20% like the corrections in 2016 and 2018. Scare the hell out of retail traders. The reset to go higher in oct