Stocks are down sharply this morning.
This means they’ve taken out their first level of support (top blue line) and will now test secondary support (lower blue line).
![](https://gainspainscapital.com/wp-content/uploads/2020/09/GPC921201.png)
This is not without precedent and honestly, those calling for a crash here are getting carried away. The reality is that stocks were EXTREMELY overbought going into this correction.
Look how stretched the S&P 500 was from its 50-day moving average during this recent rally (purple circle) relative to recent tops (red circles).
![](https://gainspainscapital.com/wp-content/uploads/2020/09/GPC921202.png)
It is HIGHLY unusual for the market to be this stretched and NOT stage a significant correction. Again, this was 100% to be expected and if you were watching for this in advance, you likely already locked in a number of solid gains from this move.
So, what is likely to play out here?
Stocks make a new low this week, before preparing for the next leg up. Something like this:
![](https://gainspainscapital.com/wp-content/uploads/2020/09/GPC921203.png)
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research