This chart of the 1996 Nasdaq correction looks very similar to previous corrections.Â
From its intraday high in May to its intraday low in July, the market moved down ~20%.
Judging from reader comments, I need an operational definition of “leg down.” While I’ve not settled on one yet, I’m thinking that any period where the market does not make new lows can be considered a bounce, or consolidation, and when those lows are subsequently broken this would represent the start of another “leg down.” Up for discussion is how many days without new lows are required for a period to be a consolidation or bounce. I’m leaning towards 2 days.
One interesting development from this examination of tops is that the Stochastics consistently have nailed the bottom. Combining a Stochastics buy signalÂ with a requirement for volume to be x% greater than the 50 day average when the signal occurs might make for a profitable way to play corrections.
Finally, I want to continue to emphasize that these moves typically come in waves (legs). The selling tends to dissipate after a capitulation day.