Be careful what you wish for…

Jim_SamsonThe latest howl-du-jour has been the talking heads and experts wishing for a ‘healthy’ 10% correction.

I’ve always welcomed healthy corrections in what has been a long bull market, but what constitutes healthy and what constitutes sudden death?

Let’s find out as we get an update on the big picture unfolding…

Here’s our trusty old friend, the S+P 500:

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The straight-ish blue line is the long term moving average price- the benchmark 200-day price average. As you can see it’s pointing decidedly UP, and even with the correction that currently seems to be underway, the price of the S+P is decidedly ABOVE that uptrending long term moving average price line. In fact, it’s been comfortably above that blue line since early 2013 when the bull market really started accelerating.

That’s highly significant, and the reason why we are still in a bull market until proven otherwise.

So now onto what constitutes a healthy correction and what constitutes a sick one?

Well, these ‘experts’ are practically demanding a correction of an arbitrary 10%. Well, 10 is a nice round number after all, isn’t it…? And then, I imagine, these experts will feel comfortable buying stocks again after this drop.

Be careful what you wish for, Mr. Expert…

A 10% correction in the S+P would take it down to 1,776. Look at that chart above and see where 1,776 is! It’s WELL BELOW that long term average line, and probably a crash scenario- we’re talking severe damage with nothing healthy about it. And those clowns are BUYING then? See what passes for advice these days?

A correction no lower than 1,900 (the blue line) would be healthy. Any lower than that, and I’ll be shorting this market.

For now, the market seems about to make another short term downward swing within this bigger uptrend, so let’s prepare for that and see how far down she goes- the Midas Legacy trend indicators have flickered red and green for short and long term respectively. Good luck to those experts buying this market if the long term indicator turns red and they get what they wish for…

The author has an interest in the securities discussed in this article. Source of charts: stockcharts.com

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