Here’s where the correction will stop

Jonathan Kirn | Stone | Getty Images

The stock market doesn't like change. I can sympathize, as I don't really like change either.

Stocks are currently going through a transition from historically low interest rates to higher rates, because of the prospect of less Federal Reserve interference. Consequently, the stock market is shifting from buoyancy caused in part by attractive yield comparisons with government bonds to a period in which investors will have to rely on prospective growth.

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It doesn't matter that the change in Fed policy is fostered by an improving economic picture. The current focus is on the fact that the paradigm has shifted. But stocks will get through this change, and probably emerge stronger on the other side. The task here is to attempt to figure out how low the market will go before bottoming.

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Based on Thursday's violation of a small head-and-shoulders pattern in the September E-Mini S&P Futures, I have a 1,646 downside objective. At that point, I will increase long exposure, with an upside target around the old highs of 1,705. A settle below 1,620 will convince me that the correction could be deeper, and at that level, I will be stopped out of speculative longs.

Jim Iuorio is the managing director of TJM Institutional Services. Follow him on Twitter @JimIuorio.

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