We've been in this large consolidation pattern for a month and this area is going to define this market for several months going forward. This huge area is either going to turn out to be a major or a major , with emphasis on MAJOR. If the don't turn around and head north at sometime between now and the close of trading on this Friday, then we are headed below the intermediate at 1818. If we should close below that level today, then 1811 may come into play on Monday, and if 1811 does not hold, then this market is in trouble. But here's the deal: often times the first break of any trend or consolidation is a false break and needs to be confirmed. There are several ways to do this. You can watch for two closes below the range or, the more conservative approach would be to wait for a move 3% below the consolidation zone. That 3% drop would take $SPX down close to 1750. If I were long, I wouldn't want to give the $SPX that much room, but I'm not long anything but gold right now. My thinking is that if we drop below 1811 on a closing basis, and regardless of any bounce that might follow, then the voodoo round number of $SPX 1800 will surely come into play. We take that out and close below 1800 for a couple of days and we probably are headed to $SPX 1750 +/-. Interesting thing about that is that the mid-line of the long term $SPX monthly chart is right at 1750. But I'm way ahead of myself so let's see how it goes over the next few days.
I think the market is in trouble but we will probably have a short-covering rally from hell coming up soon. At the very least one would expect a bounce to test the 50 DMA and I am looking for wash-out action on Monday.
Longer term, Yellen takes over at the end of the month. It's anyone's guess how long it will take the markets to test her but test her they will.
Make a guest appearance at the DXD board on occasion when time permits. We miss you over there.
The 1 year SPX Mid-channel of 1800 was indeed breached soundly. A lower channel test near 1740 appears highly likely. Unless EM's break down significantly further, the lower channels is likely to hold. A break below the lower channel starts creating long term trend breakage and cascades to multi-year support level tests just below 1700. Let's hope we do not see that, since the probability of a bear market goes much higher.
While the EM currency issue and China PMI data are disturbing, these issues seem to be more of after-the-fact explanations for an already extended US market that had come up to serious trend-line resistance. This pullback, if orderly, should reduce the "buyers' strike", accumulate equity inflows, elevate fear index, and normalize investor sentiment. This all creates "potential" for the next advance to new highs in the March time-frame. I would expect a sharp rebound at least one day this coming week, and volatility to continue another two weeks. The key will be the markets ability to maintain an orderly sell-off to complete this corrective phase. A soft word from the fed on taper pace should be sufficient. I suspect the US Fed, BOE, and BOJ are having some chats this weekend.
Meanwhile, I just put up another chart in which I discuss a potential bounce for Monday/Tuesday. I'm in the camp that a bounce is all we get and that we're headed lower after that, but I'll let the market lead and follow it up if that is what it wants to do.
SimGlen, I think a test of the monthly mid-channel in that 1740-1750 area is likely, too, but as I point out in my most recent post, that is not a real area of strength as $SPX spent so little time there. If we do in fact head that way, then I think that mid-channel support line will fail and we will head to the lower trend line. Time will tell.
Thanks for all your comments.