Falling stock prices are entirely natural in the market. Pullbacks are not rare or cause for concern in the stock market unless they precipitate a potential bear market. Is the Stock Prices Falling Is Perfectly Normal?
Parameters for stock market declines:
- A correction of -5 percent is a pullback.
- An adjustment of – 10% is normal.
- A decline of -20% constitutes an official bear market.
- On a chart, a decline of -50 percent is a crash.
The following are some of the events that occur during routine stock market price swings:
- Corrections are a common occurrence in uptrends on the majority of charts.
- Even during a stock uptrend, prices will frequently revert to the 50-day moving average.
- On a normal basis, stock index ETFs will reverse near 70 RSI and fall back to 50 RSI.
- Bull markets will frequently revert to the 200-day moving average.
- Profit-taking causes prices to tumble to all-time highs.
- Downtrends are initiated when stop losses are triggered.
- When investors on the sidelines either stop purchasing or begin selling in large quantities, either of these events can result in a decline.
- Accumulation cycles propel prices upward until risk/reward ratios become unfavorable.
- When the market has absorbed all available supply down to a support level, the chart will cease falling.
- Fear is the primary driver of market corrections. It can be sparked by pessimistic headlines.
- Trees do not grow to the sky, and bull markets do not continue to set new all-time highs without any pullbacks.