The market action last week definitely suggests that some sort of correction is underway in the U.S. stock market indices. I think that there is probably more downside to go given that, after the major lows of March 2009 and October 2011, the first significant drops on the major indices were roughly 5% and 10%, respectively. In the current situation, the Dow and S&P have only fallen 3% from their recent peak thus far.
As for how deep this correction will go, I don’t have an informed estimate, other than that I expect the Jan/Feb lows to hold on the Dow and S&P.
However, if the correction become severe, I would not be surprised to see the NASDAQ-100 (NDX) make a new low, given that it fell considerably short of its December high during the recent rally. Also, the NDX seems to be somewhat out of phase with the Dow and S&P 500 as I described here.
Considering the Middle Section count described in my previous post, it is possible that the markets could be bearish until June. However, I still expect that the stock market will make new highs during the 2nd half of this year.