The big one that alot of people have been looking for finally happened today. You can see by the chart that alot of damage was done today. I would love to tell everyone I called this in advance, like last May.
However, that would be false. I had been warning that we were setting up a sell signal, but my large picture sell has not triggerred yet. After today, it will not ,simply because one of the components requires an overbought condition, which is now weeks away.
Days like today take on a life of their own, once the selling begins with this type of power all that you can do is honor whatever stops you have in, and let the action take place. Many reversals do happen after heavily negative overseas action like we had last night, so we cannot always know that this type of blowout will follow that.
If I had to guess what will happen next, I would guess the following. A little more weakness over the next few weeks. Then a bounce up that fails to make a new high, setting up a larger picture sell signal that syncs up with my timing indicator. There have been a few instances like this for those who get my newsletter, that were pointed out last month. This is only a guess, with no real basis other than just my years of experience, it may or may not have any value.
For those trying to trade in here, what I would suggest is to cut back your size to take into account the increased volatility that is likely to be here for a bit. Next, honor your stops and do not get emotional. We do not have many days like this historically, so the sample size is too small to have a reliable read on what will happen tommorrow. We are already very extended down, and historically 5 consecutive down closes in the S&P which we have had, have been good short term buys. I will more than likely be buying the S&P on Wednesday depending on what my systems tell me.
It is possible that this is an isolated event, but there are not many historical days like this that just result in things returning to normal right away. The strong bond market should provide some strength underneath this soon.