Thursday, June 21, 2012

Market fall: Not yet a rout, or even a plunge

After the close today we'll all be reading market stories abounding with words like "plunge" and "rout" (as the AP did in the story published about an hour before the market closed).

To put things in perspective (and as an exercise in chart reading) ...

The S&P 500 moved into a downtrend on April 2, falling from 1422.38 down to a low of 1266.74 on June 4.

The price then reversed, climbing to 1363.46 on June 19, breaking past the previous high in the stair-step down from April.

From June 19, the price reversed again, reaching a low today (so far) of 1328.85.

So, the index was in a downtrend from April into June, reversed in June and has now set a higher high, making it an uptrend.

To negate the uptrend, the price would need to fall below 1266.74 -- the price at the June 4 reversal. To confirm the uptrend, the price would need to break above the June 19 high of 1363.46.

So it's not a rout yet by any reasonable definition, and not really a plunge. It's a correction that so far has fallen about 35 points, or 2.5%.

The price in two days has fallen within the range of past price movements, since the index on average traverses about 19 points a day, or 38% in two days.

The S&P 500 may well become  a downtrend, and indeed a rout. But it hasn't yet.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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