After months of consistent predictions by the mainstream media that markets would only march higher, airtime is  now dominated with one simple question: “How big will this correction be?”

That is the question that I want to explore in more detail strictly from a technical viewpoint.

Since the end of the federal reserve's last round of “QE,” market volatility has increased. Most importantly, market volatility appears to be in the early phases of challenging the downtrend that began in 2008. This is critically important as the change in the trend of volatility tends to occur with changes in the trend of the overall market. As shown in the monthly chart of the S&P and VIX below, this change in trend occurred previously in 2007 as the market began its final acceleration to its peak late that year.

It can take quite some time before we will now for sure that a change in the general trend of the markets have occurred. Therefore, as investors, we need to have some understanding about the general dynamics of market movements within the current trend of the market. The series of charts below is a layered build using a weekly data chart of the S&P 500 index to smooth out the noise of daily data.

In the mainstream media, it is considered near heresy to discuss market corrections. Furthermore, if you do, and it does not happen coincident with the utterance of the word“correction,” you are simply wrong. However, in the “real world” where investors have capital at risk, corrections happen on a very regular basis. Moving averages, over time, act like gravity. When market prices deviate too far in one direction from their long-term moving average, the gravitational pull eventually pulls prices back from orbit. Over the past couple of years, the 50-week moving average has acted as a consistent support for the markets keeping prices contained within a consistent bullish trend.