Stock Market Big Selloff, Is a Correction Underway?

By: PhilStockWorld

Courtesy of Doug Short: The S&P 500 opened lower and traded steadily lower, closing at its intraday low for a loss of 2.09%. That’s the biggest daily decline since the 2.50% drop on June 20th. The holiday-shortened four-day week was down 2.63%. That’s the biggest weekly decline since the 3.02% drop in May of 2012.

The question on everyone’s mind is whether we’re seeing the start of a significant correction. And Fed watchers are no doubt wondering whether the central bank might rethink the taper timetable.

Here is a 15-minute look at the holiday-shortened week.

The yield on the 10-year note dropped 4 bps to 2.75% and is now well off its 3.04% interim high at the end of 2013.

Here’s a daily chart of the index. Readily apparent is the price drop below its 50-day moving average, which came on a substantial surge in volume.

As for the question of whether a correction is underway, here’s a bit of historical context. I’ve used the “percent off high” technique to show all the declines since the market bottom on March 9, 2009, and I’ve highlighted the declines in excess of 5%. A correction at this point should not come as a surprise.

The S&P 500 is now down 3.14% for 2014.

Here is a longer perspective, starting with the all-time high prior to the Great Recession.

For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.

- Phil

www.philstockworld.com

Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)

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