SmarTrend Called Last Week's Correction. What's Next?
What a difference a week makes. Readers of our Morning Call newsletter were forewarned of the 4-5% correction in the market which indeed occurred as the S&P 500 closed the week sharply bouncing above and below its 50-day moving average. The percentage of stocks in an Uptrend fell sharply to 53%, down from 73% in the week-ago period. The drop to 53% is notable as it is lower than levels reached during prior corrections and may be indicative of a near-term top forming. Holders of equities may be looking to cash in on some of the extraordinary gains realized since March as volatility, as measured by the VIX, has reached levels not seen since June of this year. The return of the average Uptrend has declined with our Downtrend calls picking up steam - moving from an average of 0.9% decline three weeks ago to more than a 7% decline currently. Also expected, the number of Downtrends that are now "in-the-money" has also risen to 84%, up from 65% last week. As these numbers point to a topping process, whether or not this is merely a leveling off after an incredible run or the start of a much larger correction remains to be seen. In either case, readers of our Morning Call will be among the first to know which scenario is playing out.
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