To figure out what lies ahead, I spent some time looking back. When the market finally cracked it's support line in 2007, it looked like this (in the futures):
As seen on the close up, the initial crack was far from the only opportunity to play the downside. The SPX spent 5 days backtesting the support trendline, with daily ranges of "only" 25-40 points. After that week, though, it tumbled an additional 170 points, with daily drops of up to 70 points.
Needless to say, there were still plenty of additional entry points on the way from 1586 to 666. There were also plenty of traps. The rebounds were mostly easy to see for anyone watching the harmonics. The biggest ones flashed Gartley's and Bat's that were pretty obvious. And, in general, the moves followed the obvious fib levels up and down.
Just remember, nothing moves in a straight line. While the trend should continue to be down, we still haven't established a lower low. Until we break 1294, there's always the possibility of a significant rebound. If things play out like in 2007, that would indicate a trading range of 1295 - 1313 for a week or so before any really big drops.
|Since the Bottom|
We have a much more interventionist Fed now, and they can be expected to dip into their bag of tricks now that their backs are up against the wall. It won't change the long term outlook, but it may very well disrupt an otherwise inevitable decline.
|Medium Close Up|
A quick look at the VIX, at only 18.22 after spiking to nearly 20, tells me there's also potential for a more significant bounce back. It has completed a bearish Bat pattern that promises imminent declines in volatility. I discount it somewhat, as C is a bit below A. But, lately, these messy patterns have been playing out as well as those better formed.
It might not mean anything, but I take it as a sign. Combined with the probability of backtesting the rising wedge resistance line and the Fed/Gov't pulling out all the stops, it's possible we'll rebound above 1313. Bottom line, short term trades on the downside should be accompanied by stops.