The Truth About Today’s Bloodbath in Stocks

We went into some detail on the stock market’s likely trajectory last Friday, but in light of this morning’s bloodbath, I know many of you are worried about what’s to come.

First and foremost, this correction was to be 100% expected. Markets are living, dynamic entities. And like people, they can get “exhausted” from pushing too hard or overextending themselves.

With that in mind, take a look at how stretched the S&P 500 was from its 50-day moving average (DMA) during this recent rally (green circle) relative to recent tops (red circles). The markets were EXTREMELY overbought and exhausted going into this correction.

Again, it is HIGHLY unusual for the market to be this stretched and NOT stage a significant correction. This was a VERY expected move and the fact that stocks are falling should NOT be very worrisome from a technical perspective.

So, What Is Likely to Play Out Here?

I believe stocks will likely put in a new low this week, before preparing for their next leg up. In terms of price action, I expect something like this to unfold:

We’ve already seen this play out once before. Take a look at similarities between this recent correction /consolidation and the one the S&P 500 experienced in June 2020.

This is what I’m watching this week.

Best Regards,

Graham Summers
Editor, Money & Crisis