July 20, 2021

Stock Prices Falling Is Perfectly Normal

Stock Prices Falling Is Perfectly Normal

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Stock prices falling is perfectly normal in the market. Pullbacks are not something unusual or to be worried about in the stock market until they trigger a potential bear market. 

Stock market drop parameters:

Down -5% is a pull back.

Down – 10% is a correction.

Down -20% is an official bear market.

Down -50% is considered a crash on a chart. 

Here are things that happen inside normal price swings in the stock market:

  1. Corrections are normal regular occurrences in uptrends on most charts. 
  2. Prices will drop back to the 50-day moving average multiple times even in a stock uptrend. 
  3. Stock index ETFs will reverse near a 70 RSI and drop back to the 50 RSI on a normal basis. 
  4. Bull markets will return to the 200-day moving average on a regular basis. 
  5. Prices fall at all time highs through profit taking. 
  6. Downtrends occur through stop losses being triggered. 
  7. When people on the sidelines stop buying or they start selling in mass either can lead to a pullback. 
  8. Accumulation cycles drive uptrends until prices are at unfavorable risk/reward ratios. 
  9. A chart stops falling when the market has absorbed supply down to a support level. 
  10. Fear is the greatest driver of market pullbacks and can be triggered by headlines perceived to be bearish.  

Trees don’t grow to the sky and not even bull markets don’t keep making new all time highs with no pullbacks. 

Stock Prices Falling Is Perfectly Normal

Chart courtesy of TrendSpider.com