Is the S&P 500 Due for a Correction?

The S&P 500 has gone up a lot and in a very short period of time. When this happens, there is a possibility that the index may have a correction.

Correction can happen in 2 ways. A sideways correction or a downward correction. With the S&P 500 being so overbought, a correction should happen. 

Do remember that the S&P 500 is also near its former high. This is an area of resistance and therefore we should be aware that a possible correction might take place.

Let us take a look at the charts below for more guidance.

The chart above is the daily chart of the S&P 500 futures. As you can see, the index really had a fast rally back up since late October. Currently it is very near the former highs set back in late July.

So some slowing down of bullish momentum should be expected. The stochastics is overbought and has been for quite some time. The index can have an overbought stochastics but still continue to move up.

What bothers me is the MACD signal lines. The Histogram is about to go below zero and the MACD sell signal is about to happen. You can see when that happens in the past, the S&P 500 declined.

So don't be surprised that the S&P 500 corrects when the sell signal happens. So, this might not be a good time to buy stocks. 

One have to wait for a correction either a sideways correction or a downward correction before it is safe to enter most stocks as 75% of stocks tend to follow the direction of the general market which is the S&P 500.

We can take a look at the 60-min chart of the S&P 500 for a better guidance. So far there is a good area of support below which I have highlighted in green.

I believe that as long as the S&P 500 stays above the support area then we would most likely have a sideways correction.

If it drops below the support area, we will see more correction. Do take note of the 60 min 200 MA as well. Usually it is not a good thing when the S&P 500 drops below its 60 min 200 MA.

So be careful once it does so.

I hope this analysis helps you and do follow me for more analysis like this.