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.

Chart: The S&P 500 Had Gotten Way Overextended

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:

Chart: More Downside is Likely Before the Next Leg Up

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.

Chart: We Are Mirroring Past Consolidations

This is what I’m watching this week.

Best Regards,

Graham Summers
Editor, Money & Crisis

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Graham Summers

Editor Graham Summers has spent the last 15 years building a reputation as one of the most sought after and highly respected investment strategists on the planet. His work has been read and quoted by former Presidential advisors, award-winning institutional analysts, U.S. Senators, and more. He’s one of the few analysts on the planet to...

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