Possible Correction Retrace
Updated
If we get a bounce next week, look for a retrace to around the 3122 level in SPX. This would be a good time to close out long positions held through the most recent declines. Market moves like we saw over the last week warrant a need to be defensive.
Note
It seems we will get the start of the bounce when the markets open today. Selling into strength first at 0.618 (~$3057) could be prudent, then selling again if we see a move to 0.5 (~$3122). Since it is not possible to know exactly how much of a retrace we will see, getting out at a good price makes more sense than trying to get out at an ideal price.The stock market often acts as it was governed by the laws of physics. The move down was fast and went further than one would have expected, so the move back up will likely appear as fast, but unlike the move down, it will meet a great deal of resistance, which for a bouncing ball is gravity, but in this case is fear, uncertainty and doubt.
Note
Currently now 1% away from the 0.5 retracement.Note
With futures up, there's a good chance we'll reach the 0.5 retracement (~3122). It seems likely that we'll see the rally end there, but given the severity of the decline, it's possible we some extension past that typical counter rally level.Regardless of the exact levels, we are still very much in a distribution phase, which means it is very unlikely to see a complete reversal and a restart of the advance we saw prior to the correction. As buyers step in thinking that the worst is over, smart money will be looking to sell the remainder of their positions that they were caught holding during the fast declines.
As Jesse Livermore said, "I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.”
Note
We hit the 0.5 retracement level today and then quickly retreated from there. Now we're likely to see another visit of the low around $2847. If that doesn't hold, we could easily see SPX going to the 1.618 extension around $2507.
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