This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

What Could Happen to Major Stock Indices When a Correction Comes

NEW YORK (TheStreet) -- It has been a long time since the stock market had a correction. Today we're going to look at the potential lows the major averages could see when we do get one.

At the start of August the five major averages were in a technical formation that came close to signaling a correction.

Read More: 10 Stocks Carl Icahn Loves in 2014

On Friday, Aug. 8, the Dow Jones Industrial Average, S&P 500, Dow Jones Transportation Average and Russell 2000 had negative weekly charts with weekly closes below their five-week modified moving averages and with declining 12x3x3 weekly slow stochastics. The Nasdaq did not, however.

The Nasdaq closed that week one point above its five-week modified moving average with its weekly stochastic still overbought with a reading of more than 80.00. The following week, stocks began an impressive rebound and so did not confirm a correction.

I have always said that you cannot have a correction or bear market without all five major averages confirming market tops simultaneously. Without a fully negative configuration, new highs were very likely, and three of the five averages indeed went on to new highs.

The Dow industrials and S&P 500 set all-time intraday highs at 17,153.90 and 2005.04, respectively, on Aug. 26. After I wrote, "Apple, Intel, Microsoft, Netflix, Tesla Can Lead the Nasdaq Back Above 5000" on Aug. 28, the Nasdaq traded to a multiyear intraday high at 4580.27 on Aug. 29.

I would argue that the current situation is an equity bubble.

Read More: How the American Air Merger Helped Charlotte, Philly and Fort Wayne

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $124.49 -1.50%
FB $82.16 -1.20%
GOOG $548.46 -0.65%
TSLA $188.77 -0.94%
YHOO $44.44 -1.10%


DOW 17,776.12 -200.19 -1.11%
S&P 500 2,067.89 -18.35 -0.88%
NASDAQ 4,900.8850 -46.5560 -0.94%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs