The stock market has been correcting for several months, leaving investors concerned when it will end and why it's important to know where you are in relation to market trends. Will the current intermediate trend correction infect the primary trend? The primary trend, also known as the long-term trend, usually lasts between two to five years. The intermediate trend, on average, lasts six months to a year. Therefore, the intermediate correction will end once the Dow moves above its April high of 10500. Then, the intermediate trend can be classified as bullish. The Dow has come close to its April high, but there still is no cigar.

Wait until the intermediate-term trend becomes bullish before aggressively investing in the stock market. Limit your stock investments at this time to a few of the small-cap stocks I have suggested in recent weeks. Invest only $1,000 to $2,000 until the current correction is over.

Why is it important to know where you are in relation to market trends? Market trends have momentum, however, the intermediate trend has been down for most of this year. Nevertheless, the primary up-trend has been positive for much of the last several years. Therefore, the Dow could fall as low as 9000 and maintain a bullish primary up-trend. The current business cycle bull market would end if it were to exceed a Dow 9000 to the downside.

Since trends have momentum, they only tell you where you have been and not where you are going. You must extrapolate knowledge from what has recently happened to the market in order to find where you are headed. It is much easier to determine the future trend once you have identified the current and past market trends and the forces that drove them.

Will the current intermediate correction trend spread to the primary trend? The stock markets (Dow, NASDAQ, and S&P 500) could be expected to retest recent lows if they fail to move above recent highs. The optimal support level for the Dow, S&P 500, and the NASDAQ will come in at 9000, 950, and 1500 respectively. If there current lows fail to hold, it would spell the end of the bull market for the current business cycle.

The economy seems to be heading upward when looking at its past actions during intermediate-term corrections. First, the country's Gross Domestic Product (GDP) is estimated at 3.9%, and will continue to improve to 4.5% or 5.0%. Second, the money supply, measured by MZM (Money-to-Zero Maturity) is expected to grow by a positive 20%. Third, the Fed Funds Rate will rise no higher than 2.25% by the end of the year. Finally, employment will rise moderately, which should keep prices to rising only moderately throughout the year.

There is one caveat to the economy's likely improvement. If the U.S. pulls its forces from Iraq prematurely, it will leave the new Iraqi government vulnerable before it can achieve and safely sustain stability. This vulnerability would probably become a prelude to civil war. A civil war would birth anarchy, and spawn a whole new era of terrorism in the Middle East. America would fail in the fight against terrorism, only to return several years later to defend Kuwait and Saudi Arabia from theocratic tyranny as we did in Vietnam in an attempt to contain the spread of communism. Like an arrow through the heart of the nation' economy, the end result would be an explosion in the price of oil.

Don't miss the July issue of Kenneth Coleman's Investment Tracker, to find out how to profit from the next major market rally.

Kenneth Coleman