This is a very brief out of cycle letter to highlight a material change to the correction criteria being monitored through 2024. The regular weekly Sunday note will still be issued.
The three correction criteria:
Price trades below the short duration moving average (20 day exponential)— signifying the loss of the short term uptrend
Breadth turns negative— more stocks make new lows versus new highs
A concluding momentum interruption
All Correction Criteria Triggered
Trend, Breadth & Momentum
Today marks the first instance since July of 2023 where all three correction criteria have been triggered:
The S&P closed 5160, below the short term moving average (5183)
Market breadth as measured by Net New Highs (middle panel) recorded as negative
Momentum (lower panel) remains negative following the 6th momentum interruption at the beginning of April
The activation of all three correction criteria has historically preceded significant market declines. For reference, see the chart from the opening March letter “When Will the Market Top?”
With all three criteria now active, the likelihood of a meaningful correction in the market increases significantly. As discussed in previous weeks, the correction targets for the S&P 500 are set at 4800, with a broader range between 4500 and 4600, representing a potential decline of 7% to 12%.
I think it is very likely that hibernation for the bear participant is over.
The upcoming regular Sunday note will discuss my strategies for navigating this impending market shift and will explore the implications a correction may have on the three category trade ideas shared this year: US Small Cap Equities, Outside of US Equities, and The Gold Trade. These category ideas will also be accompanied by chart updates. (See note from March 26 for last set of chart updates)
Disclaimer: The information in this article is for informational purposes only and should not be considered financial advice or a recommendation for any investment. I am not a financial advisor, and the content is not intended to serve as financial advice. It is solely intended to journal thought, ignite more thought and discussion.
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