Charting the Markets: We Might Be in Correction Territory, But ...
A corrective period to remove the recent froth would set up a nice run to the end of the year; what we're seeing, however, is a 'correction of time.'
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Let's take a look at a chart of the market and see whether a correction is nearing.
First, we're not seeing much change in the chart formation, as we see the channel in the top pane of the chart below is still live.
Volume started to pick up the prior week and expanded a bit this week, but did so during the down sessions. That is notable, because the price action followed the poor volume trends into a corrective move.
Understand: We are not saying a 4%-5% correction is coming. What we are saying is we probably face a correction of time and not price.
What is a correction in time?
A correction in time is simply letting the stock move sideways through an undetermined amount of time. This corrective period could be short or long term, but probably won’t see too much price movement up or down, frustrating both bulls and bears until the time period is completed. Oftentimes a stock that has a strong run up needs to take a rest or a breather, much like an athlete or runner that runs out of gas. They need to take a time out before getting going again.
We can certainly agree the price action was strong for a good five to six sessions after the election results were known, so we expect the same sort of time correction or even a bit less.
It is not visible on our weekly chart, but the four-period moving average (weekly, or 20 days) in the middle of the chart was tested at the lows on Friday.
That has held as good support since August, and stocks have rallied from that point. There are only 30 trading days left in 2024, and plenty of time for some big moves. The S&P 500 is up by 24% for the year with only that many days remaining, we could see some nice upside as the markets try to finish the year with a flourish.
