Stock Market Forecast Outlook
October 12 2017 - U.S. Markets Consolidation or Pullback? By Dr. Van Tharp Trading Education Institute
After going straight up for eight trading days, the S&P 500 has started a narrow sideways consolidation.
After such a strong move up, a pause is certainly a normal market response. But the important thing is not THAT we get a consolidation or a pullback — it’s the nature of the move itself.
Before we dig into what to expect if we get a pullback, let’s look at the nature of this rise and early consolidation:
For some context, here’s what has happened after other similar steep moves up in the last six months:
So if the market remains in “grinding bull” mode, we could expect a very modest pullback followed by a sideways consolidation.
How deeply any pullback goes will give us clues into whether the grinding bull continues.
If the market transitions into a deeper pullback, here are the key levels to watch:
From Thursday’s all-time closing S&P 500 high, a modest “grinding bull” pullback and consolidation range would entail a 2-3% drop, as we see above. And that would be a “ho hum” business as usual pullback.
A deeper drop to the support level at the bottom of the June-July box would be a very normal 5.5% pullback. And we haven’t had a pullback greater than 5% in over a year - that shows the nature of this “up only” market…
The next line of defense is the bottom of the February-May box. And a drop that doesn’t go below that key support level would give us a 9.9% pullback — that’s just shy of an official correction.
The bottom line is that a pullback from here is normal. Watching the market activity over the next 2-10 trading days will tell us the nature of the pullback. Until we’ve pierced the key levels shown above, we’ll keep using short and intermediate term pullbacks as entry opportunities.
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