NEW YORK (TheStreet) -- If the S&P 500 pulls back 10%, look for it to continue sliding until it's off 15%-to-20%. If not, expect a new paradigm of smaller market moves (down 3% to 9%) that should be seen as buying opportunities.
The S&P 500 closed at 2,094.11 on Friday, about 1.7% off its recent high. It opened down another 0.8% today in early trading.^SPX data by YCharts
Every time we have the smallest of pullbacks in the stock market we immediately hear chatter about a market correction. For a majority of traders, when we hear the word correction, it is typically known as a pullback in the stock market of around 10%. Often, in bull markets we see 10% corrections as a good or healthy test for the market. It tests the will of the bulls and it brings in doubters that will short the market. This then gives the market volatility and more energy to either make a new high or potentially turn the market into a bear market with a 20% or more decline.
But the typical patterns of correction and rally have changed in the current market environment.
The current thinking on corrections doesn't take into account a world with quantitative easing, the Federal Reserve's bond-buying program that has pumped billions into the banking system. The Fed and European Central Bank QE programs have created a market that no one has ever seen before. In practice, QE means higher bond prices with lower lowered yields, while simultaneously increasing the monetary base. It forces traders to buy stocks as yields go lower and stocks go higher. QE has created crowded, one-dimensional markets that almost don't allow 10% corrections, but it does allow a lot of minor corrections; typically 3%-to-9% pullbacks. These are not the corrections that veteran traders are used to and are anticipating as buying opportunities, but that is the new environment for the market.