In focus: Correction in a bull market?

By Lawrence G. McMillan

Negative thinking has enveloped Wall Street in the last week. It’s rare to see to such obvious negative news reflect itself so directly in lower prices, but that’s what has happened in the last six trading days.

There has been a good deal of technical damage done in that short time, but oversold conditions are also emerging rapidly. Therefore there is still a chance that this is merely a correction in a bull market. Support levels are near at hand, though, and if they are broken, then a more significant bearish scenario could unfold.

The S&P 500 fell through support at 1,390, and the selling accelerated after that. Another, more minor, support level at 1,358 was unable to stem the selling tide as well. However, the more formidable support at 1,340 (early March lows) should give a better chance for the bulls to make a stand. There were significant rallies from 1,343 and 1,347 the last two days, so that all fits into the general level of support that exists now. Of course, if that support should give way, then even more selling is likely to take place — perhaps even more severely than when 1,390 was broken last Friday...

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