Is the market about to correct?

We here at Below Your Means are not stock traders, however we believe strongly in investing smartly and being prudent with your hard earned money.  Protecting the money you have invested (known as protecting your capital) is key to the long term accumulation of wealth.

While I don’t pretend to be an expert stock technician and chart expert, I can look at a chart and draw a basic trend line.  If you believe in technical analysis at all, the following chart should definitely give you some pause:

SP 500 Trend Line Broken June 2011

The chart above shows a basic trend line of the S&P 500 since it hit the infamous low of 666 in March 2009.  This trend was “tested” in August of 2010 and today appears to have “broken” (meaning stocks closed below the trend line).  In trader terms, this could just be a “head fake” and we could head higher from here.  However, that trend line will now be considered “overhead resistance” and it looks like stocks could be getting ready to “correct” (an other trader term for “go down 10% or more”).

If you have read our 7 tips every new investor should know, you know I personally do not generally believe in the classic “buy and hold” approach to investing.  Instead, I prefer to hold onto quality assets and protect my gains (sell) should the market look to be rolling over.  If you were lucky enough to buy stocks in March 2009, or any time since, you are probably holding some solid gains.  Now might be a good time to consider locking in those gains and see what happens.

If this is indeed the start of a correction, an S&P 500 price of 1050 would be a logical place for it to stop.  That’s a solid 20% drop from here.

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5 Responses to “Is the market about to correct?”

  1. Robert @ The College Investor

    I agree that a correction is due. Maybe not 20%, but a good 5-10% drop is reasonable.

  2. krantcents

    Is it a correction or is the market ultra sensitive to every little bit of negative news?

  3. Aaron E

    LOL – Well, I personally am bearish and would say the market has been ignoring bad news of a slowdown for 6+ months now. I think the end of QE2 and the stuff in Greece is really getting people scared. The market needs to go down to “justify” QE3.

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