The Market Finally Rolls Over. Now What?

We have our correction in hand, but is the selling over?

Technical Edge — 

• NYSE Breadth: 88.6% Downside Volume (!)

  • — 3rd 80%+ downside day in the last 4 sessions

• NASDAQ Breadth: 77% Downside Volume 

We received some great feedback on the video we posted yesterday, because it helps illustrate the structure of the S&P 500. 

In this type of tape, traders have to be ready for several outcomes. Yesterday we were watching for either: 

1. A daily-up continuation rally, or

2. A weekly-down rotation

Right out of the gate on Tuesday morning, the latter played out and put us in a bearish setup shortly after the open. Now we need to reassess. 

Game Plan 

We’re getting a pre-market rally and while I’m not against getting long necessarily, I don’t like gap-up approaches in a bearish tape. I just don’t. The risk is simply too wide for us to chase a higher open, so we need to see how it sets up after the open. 

As it pertains to individual stocks, some members have been asking if there are more setups on the way. I’m sorry to say, but right now there are slim-pickins on the individual stock front!

We got lucky and had a nice window for a few weeks where we were able to hit them. However, when the VIX goes above $25-plus, individual stock picks usually take a back seat to the trades on the indices.

That’s just the way it is right now, unfortunately. I can’t in good conscience post setups just for the sake of posting setups. The quality has to be there and right now, there is simply little to no quality setups until the volatility settles down. 

S&P 500 (ES & SPY) and Bonds (TLT)

We got the move down to the area we were watching in a fast-moving “ABC” correction. From here, I’m watching rallies to the 4220 to the 4240 area. If we bounce that far and fail, 4200 remains in play, while the 4150 area remains vulnerable. 

Specific Levels: