US markets were overdue for a correction and continuation of the advance for much longer would have resulted in instability, from an imbalance between buyers and sellers.
At Research & Investment we do not attempt to time entries and exits on secondary corrections. Our research shows that this is expensive and erodes performance. What we do pay a lot of attention to, on the other hand, are macro-economic and volatility indicators of market risk, exiting to cash when risks become elevated.
With a long-term view of the market, secondary fluctuations are relatively insignificant, but they do present opportunities to increase investment in the market.
The S&P 500 broke support at 1810, signaling a correction. Bearish divergence on 21-day Twiggs Money Flow strengthens the signal. Expect support at the Setember 2013 high of 1730.
A monthly chart places the latest breakdown in perspective. Respect of support at 1700 — and the secondary trendline — would confirm a healthy primary up-trend. A 13-week Twiggs Money Flow trough above zero would again strengthen the signal.
* Target calculation: 1800 + ( 1800 – 1700 ) = 1900
The VIX is rising steeply, but continues to indicate low risk and a bull market.
