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Forecasting The Next Major Stock Market Correction Proves Difficult

From Taki Tsaklanos: When exactly will the next stock market correction take place? How deep will the next stock market correction run?

These are clearly questions top of mind of many investors. This week, as stock markets in the US were reaching all-time highs, we received several similar questions from readers. It is clear that a bullish stock market triggers questions about the next stock market correction.

Last September, a Forbes market contributor forecasted that by the end of the year the stock market correction would have been 15 to 20 percent. Nothing seemed further from the truth.

However, this analyst on MarketWatch wrote a much better forecast about the next stock market correction, as he pointed out specific price levels to watch before a correction would start. Moreover, he suggested in October that “based upon larger-degree patterns, once this correction does complete and we begin to rally through resistance over 2200, I believe we will be on our way to our next higher target region around 2350, which will likely be a way-point on our path to 2500.” That was visibly a spot-on forecast.

Stock market correction forecasts should only focus on price

The problem that many investors face is that they want to know both prices and timings. That combination is impossible to forecast, according to InvestingHaven’s research team. It is either possible to forecast a price, potentially (though much harder) a time interval, but certainly not both.

Markets should always be seen against ongoing trends. The US stock market is in an uptrend right now. The way other markets are trending, combined with chart structures on the US stock chart, can provide some price projections. For instance, a very long term target of 2500 points in the S&P 500 is certainly a realistic scenario. Forecasting when exactly that price level will be reached is impossible.

Likewise, based on below outlined risk on / risk off cycles, it seems realistic to expect a continuation of the current risk on cycle for another 5 to 6 months. After that, things have to be re-evaluated based on ongoing chart structures in US stocks combined with trends in other leading markets like crude, gold, dollar, Treasuries, emerging markets.

InvestingHaven’s research team forecasted that no stock market crash would take place in the first months of 2017. That bullish stock market outlook resulted in a positive outlook of some specific sectors. But much more info cannot be retrieved from market analysis, at least not realistically.

All in all InvestingHaven analysts believe that a stock market correction could occur short to medium term which would bring the S&P 500 to the 2200 level. Longer term, they believe that, once a long standing target of 2500 points is reached, a stronger correction could take place, which could break the risk on cycle, depending on how other leading markets behave. Forecasting the timing for these events is simply impossible.

stock market correction

The SPDR S&P 500 ETF Trust (NYSE:SPY) rose $0.17 (+0.07%) in premarket trading Monday. Year-to-date, SPY has gained 3.57%, versus a % rise in the benchmark S&P 500 index during the same period.

SPY currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 108 ETFs in the Large Cap Blend ETFs category.

This article is brought to you courtesy of Investing Haven.

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