Three days of selling erased 18 days worth of S&P gains. Since then stocks have recovered, but is the correction over or are lower prices yet to come?
To answer this question, it helps to understand why stocks sold off, especially since there was no real news catalyst.
Last week the ETF Profit Strategy Newsletter outlined various conditions that were likely to result in a pullback.
Slowing Breadth and Momentum
The S&P (SNP: ^GSPC - News), Dow Jones (DJI: ^DJI - News) and Nasdaq (Nasdaq: ^IXIC - News) saw incremental gains in late February but breadth (McClellan Oscillator) and momentum (RSI) did not confirm price action. The February 29, ETF Profit Strategy Newsletter update warned that: 'RSI did not confirm today's high. This is a common technical setup for a breakdown of some sort.' The Russell 2000's (Chicago Options: ^RUT) turn south was also worrisome.
Precious Metals Meltdown
On February 29, gold and silver saw declines of more than 5%. The February 29, ETF Profit Strategy update cautioned that similar precious metal sell offs preceded lower equity prices in April 2010 and April 2011... read more.
The industry basically provides too many factors to consider, and this diversification often clash. Furthermore, there are no restrictions to the market`s conduct. It can do anything whenever it wants. Actually, since every individual who invests is a market variable, it can be said that any individual can cause practically anything to occur. This indicates no matter how much you understand about the market`s conduct, and no matter how amazing a specialist you become, you will never understand enough to predict every possible way the industry can switch.Technical Analysis
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