I See a Big Correction Coming Early in 2021 - Here's Why
In a year literally plagued with bad news and uncertainties about public health, social unrest, and a political crisis, the stock market posted robust returns. This doesn't surprise me -- the stock market has a long history of defying expectations, and 2020 was a flagship year for doing just that.
I expect 2021 to be different, and assuredly more volatile, in my view.
The stock market staged a strong rally off the spring lows, with frequent stories of 100+% gains and more recent news about explosive returns in cryptocurrency. From an investment standpoint, the strength across many asset classes has led to a surge in “FOMO,” or fear of missing out on returns.
Many investors are rushing into the markets, pushing sentiment from pessimistic in the spring to optimistic today. Investors borrowed a record $722.1 billion on margin through November 2020, a signal that risk-taking may be approaching a crescendo.
Optimism and overt risk-taking combined have been ominous for markets, as historically they have tended to result in corrections, pullbacks, and bouts of volatility (see 2000 and 2008 for examples). I'm also seeing signs of too much optimism in the retail brokerage market, with individual investors opening more than 10 million new brokerage accounts in 2020 – a record. The Wall Street Journal also reported that the online trading platform Robinhood saw 500,000 new downloads in December, as well as upticks in volume on brokerages like TD Ameritrade and E*Trade.
If history serves as any indication, I think this rush of investor enthusiasm ends with a sharp, sudden, and probably pretty scary correction of -10% to -20%. I'm spending the next few weeks getting cash at the ready.
SPY in +0.95% Uptrend, growing for three consecutive days on July 17, 2025
Moving higher for three straight days is viewed as a bullish sign. Keep an eye on this stock for future growth. Considering data from situations where SPY advanced for three days, in of 365 cases, the price rose further within the following month. The odds of a continued upward trend are .
Technical Analysis (Indicators)
Bullish Trend Analysis
The Aroon Indicator entered an Uptrend today. In of 429 cases where SPY Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are .
Bearish Trend Analysis
The RSI Oscillator demonstrated that the stock has entered the overbought zone. This may point to a price pull-back soon.
The Stochastic Oscillator entered the overbought zone. Expect a price pull-back in the foreseeable future.
The Moving Average Convergence Divergence Histogram (MACD) for SPY turned negative on July 15, 2025. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 53 similar instances when the indicator turned negative. In of the 53 cases the stock turned lower in the days that followed. This puts the odds of success at .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where SPY declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
SPY broke above its upper Bollinger Band on June 26, 2025. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.
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