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. 

Current SPY chart 2021

Chart courtesy of TrendSpider.com

By Steve Burns

After a lifelong fascination with financial markets, Steve began investing in 1993 and trading his accounts in 1995. It was love at first trade. After more than 30 successful years in the markets, Steve now dedicates his time to helping traders improve their psychology and profitability. New Trader U offers an extensive blog resource with more than 4,000 original articles, online courses, and best-selling books covering various topics.