In focus: Correction

By Lawrence G. McMillan

The long-awaited correction appears to have begun. So far, the damage is minimal and is completely within the realm of an overbought correction. However, all declines start out looking “normal,” so we must be alert as to the possibility of a more serious technical breakdown.

The S&P 500 Index SPX  has been down nearly every day since the Fed announced the latest round of easing. That announcement came on Thursday, Sept. 13. The market rallied that day and into the morning of Friday the 14th. Since then, SPX has lost 40-plus points, and there hasn’t been a strong day that held the rally into the close of trading since Sept. 13. Sideways action followed, as buyers of the fundamental outlook ( “QE forever” ) were met by sellers on the news.

In the last two days, however, selling has accelerated as buyers stepped away. SPX is still within the bullish channel that has defined this bull market since early June, but now it appears to be headed for a “tag” of the lower boundary, which is currently at 1,410 or so...

To read the full article, subscribe to The Market Watch Options Trader.