{"id":15859,"date":"2020-03-04T07:30:41","date_gmt":"2020-03-04T12:30:41","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=15859"},"modified":"2020-03-04T07:30:41","modified_gmt":"2020-03-04T12:30:41","slug":"the-correction-isnt-over","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/the-correction-isnt-over\/","title":{"rendered":"The Correction Isn\u2019t Over"},"content":{"rendered":"

Investors breathed a BIG sigh of relief Monday as the stock market bounced off of oversold conditions and posted its largest one-day point gain – ever. The S&P 500 jumped 4.6% higher, recovering 136 points of last week’s brutal decline.<\/p>\n

The rally was forceful enough to cause a lot of the financial television talking heads to suggest the correction is over. Friday’s low of 2850 on the S&P was the worst of it. They say stocks are now ready to rally again.<\/p>\n

I’m not so sure.<\/p>\n

You see typical stock market corrections unfold in three distinct legs.<\/p>\n

The first move shakes up folks, gets the bears all loaded up with short positions, and shifts investor sentiment rapidly from bullish<\/a> to bearish<\/a>. That was the decline we saw last week.<\/p>\n

The next leg is an oversold bounce. This move forces short-sellers to buy back their short positions – often at a loss, especially if they got too aggressive and sold short into oversold conditions. Meanwhile, the bulls scramble to get back in and they chase prices higher. That’s where we are now.<\/p>\n

The third leg of a correction is a move back down to retest the lows of the first leg. It’s usually a fast and uncomfortable move that gets the bulls to finally cry “uncle.”<\/p>\n

I suspect we’ll get to that leg either later this week or early next week. Let me show you what I mean…<\/p>\n

The following chart shows two correction phases the S&P 500 went through in 2018…<\/p>\n

\"Chart\"<\/div>\n

The first leg of the first correction started in early October. The S&P 500 lost 7% (the first \u201c1\u201d on the above chart) before it got an oversold bounce. The bounce pushed the index back up to its 9-day exponential moving average<\/a> (EMA – the thin red line on the chart) – which is a logical resistance<\/a> level and halted the second leg (the first \u201c2\u201d). Then, we got the third leg of the correction (the first \u201c3\u201d) – which, in this case, took out the previous low.<\/p>\n

The first leg of the second correction (the second \u201c1\u201d) started in December. The S&P 500 lost 16% by the time that leg ended. The oversold bounce that kicked off the second leg (the second \u201c2\u201d) was strong enough to rally the S&P back up to its 9-day EMA. The index then pulled back from there with an abbreviated third leg move lower (the second \u201c3\u201d).<\/p>\n

These are two good examples of how market corrections typically unfold.<\/p>\n

So now, let’s take a look at the current situation…<\/p>\n

\"Chart\"<\/div>\n

The first leg of the correction ended on Friday (point 1). On Monday, we got an oversold bounce – which continued on Tuesday morning when the S&P tagged its 9-day EMA. <\/p>\n

Just like in previous correction phases, the market found resistance at the 9-day EMA and turned lower. This likely marked the start of the third leg of the correction.  (I’ve drawn in a blue dashed line to show how this may play out.)<\/p>\n

But my point is that I don’t think stocks are just going to keep on moving higher from here. The market has more work to do on the downside.<\/p>\n

Best regards and good trading,<\/p>\n

<\/p>\n

Jeff Clark<\/p>\n

Reader Mailbag<\/strong><\/h2>\n

Today we hear from several Jeff Clark Trader <\/em>members about some recent gains…<\/p>\n

\n

Dear Jeff, I am so grateful that I hung with you on your most recent recommendation. After the put option play expired worthless the other day, I was ready to bag it, wondering, “Does Jeff really know what he’s doing? This is supposed to be one of his bread-and-butter plays.”<\/p>\n

Yesterday I took half off the table for a 210% gain. Today, I waited a few hours after your email to sell the second half and got out with a 780% gain. My blended return is close to 490% – WOWEE. I may do this again.<\/p>\n

– Mark<\/strong><\/p>\n<\/blockquote>\n

\n

Just wanted to say thank you, Jeff. I invested in the recent trade and made a 100% gain. I am not a professional investor. I don’t know anything about investing until I heard about you and got your information.<\/p>\n

I really appreciate it and look forward to better things to come – this is almost unbelievable for a person like me who does not know very much about trading. I appreciate you and thank you very much, and I look forward to the future and good things happening.<\/p>\n

– Garfield<\/strong><\/p>\n<\/blockquote>\n

\n

I haven’t been a member for very long, but I wanted to let you know that I’m pleased with the results of the most recent trade. I made over 270% on the trade. Keep up the good work!<\/p>\n

– Jeremiah<\/strong><\/p>\n<\/blockquote>\n

\n

Hello Jeff, I recently subscribed to Jeff Clark Trader<\/em>. Thanks to your recent recommendation, I had a 110% gain. I am so thrilled and glad I found you online. Can’t thank you enough! Sincerely.<\/p>\n

– Alan<\/strong><\/p>\n<\/blockquote>\n

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at feedback@jeffclarktrader.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Investors breathed a BIG sigh of relief Monday as the stock market bounced off of oversold conditions and posted its largest one-day point gain \u2013 ever. <\/p>\n","protected":false},"author":43,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[7],"newsletter-type":[],"ticker":[],"class_list":["post-15859","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-jeff-clark"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/15859","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/43"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=15859"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/15859\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=15859"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=15859"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=15859"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=15859"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=15859"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=15859"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=15859"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}