Tuesday’s sell-off suggests at least a short term top in the market. This does not mean that the bull market that began last year has come to an end, but rather odds have increased that the short term trend is now to the downside.
I would expect the usual bounce to the upside after such a decline is likely. If that bounce is not sufficient to take us back up to pre-decline territory and if it is followed by a down-leg that exceeds the preceding decline, a trend reversal will be confirmed. Remember, an uptrend is defined as a series of higher highs and higher lows. A downtrend is defined a series of lower highs and lower lows.
A potential correction of 8 to 10 percent would not be an unreasonable expectation. At this point however, we will have to wait and see what transpires next. Given the multiple negatives at the moment caution is called for.
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