The S&P 500 has crashed towards the 2400 level, an area that has been supported previously. Because of this, I think that the market is going to try to break down through there and go looking towards the next support level on longer-term charts, which I see as the 2100 level, followed very closely by the 2000 level. I think in the short term it makes quite a bit of sense to fade rallies as they occur, with an eye at the 2700 level as massive resistance.
I like fading short-term rallies that show signs of exhaustion, but I don’t necessarily think that you should be able jumping into the market with both feet. Having said that, in markets that act like this, my experience has shown me that you are better off trading smaller positions because once the market moves against you, it can move again she rather rapidly. I am cautious about doing so, so my position size is having been cut in half. Furthermore, it’s time to be a professional, and respect your stop losses if they get triggered. Moving your stop loss at this point can lead to financial ruin, something that I’m reading about online quite a bit in the forums.
Looking at the candlesticks, they are all getting wider, and as long as volatility is as high as it is, it’s going to be difficult to imagine a scenario where buyers would be stepping in and jumping on the market with full faith. I think at this point you need to start looking at various areas where you may will to be a buyer, all of which are more than likely going to be much lower. However, if the market was to break above the 2700 level it would be a good sign and it will be interesting to see whether or not that happens. If it does, then it’s likely that we will make a move towards the 3000 handle above. At this point, I would be a bit surprised if the S&P 500 drops below 2000, because at that point one would have to think that there would be a massive panic, much worse than we have seen lately. I’m not calling for that, but I am aware that it would be an absolute disaster for the marketplace. Remember though, the largest gains are always made in times like this, when everything becomes drastically cheaper suddenly and people are scared to death to trade.
