A stock market correction is coming.

I can’t tell you exactly when it will happen.

[ad#Google Adsense 336×280-IA]I thought we would have seen the start of it by now.

But I can say with certainty… The stock market will correct at some point, probably soon. And that correction is likely to be in the form of a significant decline.

There are too many warning signs… too many overbought conditions… too many diverging indicators.

Yes, I started making that argument last month. And the stock market has continued to press higher.

Yet all of the warning signs still persist. So it still makes sense to be cautious here. And it still makes sense to have some short exposure to the stock market.

That doesn’t mean we need to get aggressive and put everything we have on the short side. It’s a bad idea to get aggressive with short trades until we see price action that confirms all of the bearish technical indicators. We still haven’t seen that yet.

Let’s try to figure out when that will happen. Take a look at this one-year chart of the S&P 500…

Notice how the nine-day exponential moving average (EMA) – the red line on the chart – provided support for the S&P 500 during the entire rally off its February lows. Every time the index pulled back toward its nine-day EMA, it bounced and rallied to a higher high.

The pattern was broken last week when the index finally closed below its nine-day EMA. That’s the first indication that price action is turning bearish and a correction is starting.

The next indication would be for the index to break its support and drop to a lower low – below the low of about 2,038 in late March. That sort of action should lead to a quick test of the 50-day moving average (DMA) – the blue line on the chart – at a minimum.

If things get particularly bad – especially with the seasonal weakness that often kicks off in May – then we could argue that the S&P 500 will fall back toward its February low around 1,825 and erase all of the gains from the recent rally.

Like I said before, though, it’s still too early to get aggressively bearish. Price action is starting to weaken. And there are plenty of bearish signs in the market. But we can’t say a correction has started until the S&P 500 closes decisively below the 2,038 level.

Best regards and good trading,

Jeff Clark

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Source: Growth Stock Wire