Scott Redler: "Correction from 3% to 5% give us good levels for long positions"

This week's stock market's tumble may signal a much bigger downside lies ahead. Technician Scott Redler is noticing an ominous trend in the charts that could temporarily pull the S&P 500Index down by three to five percent.

Redler argues a late August correction isn't so unimaginable — especially as concerns about North Korea's nuclear intentions escalate.

"The 50-day moving average is a key for the intermediate trends. We may have lost some momentum, but at this point we haven't been below the 50-day pretty much for the entire year. So, so this is a key spot," he said. "If we end up holding it, we may see a little bit of a bounce."

Redler said investors should write down the numbers 2381 and 2332 on the S&P500. If the trend line breaks, it could signal a move higher.

"That would probably be a good spot to put some longer term capital to work," he said.

Even with Friday's positive day, the stock market closed lower for the week. The S&P500 and Nasdaq both fell by about a percent and a half over the past five sessions.

"Historically, it's August. We should be in a corrective period anyway," Redler said. "Volatility is great for traders. We haven't had it in a while. So, we'd love to see it stay."

Source: Bloomberg Pro Terminal

Jr Trader Petar Milanov

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