I will tell you what I suspect will happen next. The psychology of the market has now changed and there might be attempts to sell any rallies from this point forward. Im looking for a big increase in volatility in the near future. I would suspect a retracement to 1514 before another lower low was made. The low of yesterday was 1504 and today it was 1501. The spine of the market has not been broken yet, but another lower low would really bust that spine for two reasons. A close under the 50 day moving average would be disasterous and a close under the psychological 1500 level into the 1400s would indicate a serious change. I say we see a lower high today and then followed by a lower low and a possible break of the spine.
Don't know what you are on, but what makes you think the market gives a whoopee about your targets? You think the 500 companies in the S&P are going to move collectively down because you think it is going down? This is all irrelevant. If it happens, you will claim brilliance. If not, you will say "wait!!!!" Go flip a coin to make yourself happy.
Flipping a coin is a 50/50 event. However, if we break down the events on the following chart then a much greater reality emerges. 1) The uptrend has been interrupted. 2) This is the second test of the 50 day MA/EMA area. 3) The price closed under the 50 day SMA but not the 50 day EMA. 4) We now have a small series lower highs and lower lows. In the past, we can see that a single test of the 50 day does not mean it will pierce right through for a full blown correction. Lets take a look at what happened before all the major corrections. In the past it has taken from 1 to 6 tests of that 50 day before a true correction takes place. Before the February correction there was one test in January where the price sweeped right to the 50 day. In early 06, it took six tests over a period of 6+months. In 2004 and 2005 the index was basically all over the place. So we are on the 2nd test where the index is making a series of lower highs and lower lows. The uptrend is no longer happening. Is this a coin flip now? Are the odds still 50/50? We might move up from here, but any move to the upside will be a delay of the inevitable. I believe all rallies will be sold and distribution will occur. Whether it takes place on Monday or in two months after the 6th test, the people who will make the most money will be the ones who are patient and wait for what is about to occur. The VIX chart looks like its making a series of higher lows and lower highs telling me that an explosion is about to occur. The master stops for the market are set at a specific point. Once triggered, there will be a swift correction. Most corrections take place over the course of a month or two. In 1987, the stops were hit and that took place in a few hours. That is another event of probability. One thing is for certain. As Space Shuttles explode every some odd years due to probability so will the markets. The trick is to get on the next shuttle right after the first one explodes and with markets it is to get on the boat after they explode as well. Im not saying there will be a crash, but at this juncture, the odds are increasingly moving towards a massive correction that might take months, weeks or even days. The price never made it past the all time high and what happens after a large cup like this when the price does not get past its all time high? You and I and all of us have suffered through this before when the price doesnt get above the cup like we hoped...sometimes its a 1/3 correction, a 1/2, a 2/3 or full blown. Those are your choices. You can attempt to trade through this volatility or wait until the fight ends and pick up stocks at bargain prices.
I don't think a correction like 1987 will occur as we did not run up as far. If you are talking about the pattern, it could be, but if you are talking about the percentage drop, I don't think that is likely. Basically, the 1987 crash brought the market to the January 1987 opening price. If it happened again in 2007, it will only be 7-8% or so to go. What do you think?
While I agree with the 1500 SPX number as some sort of support, the two far more important support numbers are the SPX 200 day average, and the SPX DOW theory uptrend line. 200 MA SPX is about 1460 maybe a tad below at 1450. The DOW trendline is about 1415 SPX inching higher with each passing day. My guess is that if we extrapolate when the DOW line crosses the 200 day MA at around 1450 SPX (the 200 is dynamic and is changing constantly so the computation has to be done daily), that is a HUGE attractor and that is what the market wants to test. If it tests that and goes below the long term DOW theory trendline, and you see the market taking good news in stride and bad news badly, we are going down. Otherwise, the uptrend is well in place, and this volatility is going to continue until a new catalyst takes SPX higher and volatility goes back to 12 as measured by VIX. Aggressive bulls will buy the pullbacks as long as the above mentioned technicals remain in place. My target remains 1550 to 1600 SPX by year end. The only thing that can change my opinion of that target is the above-explained breaking of the DOW up trend line, or the FED raising rates . The bond market effectively could do the same thing first without the FED lifting a finger, so watch bond futures closely, especially duration convexity. http://en.wikipedia.org/wiki/Bond_convexity Only the NDX has resistance technicals from above. This is all new territory for SPX and DJX. nitro