Back to the infamous Triangles from last week: After breaking down from these consolidations, the selling has not stopped. The S&P500 is now down 5 consecutive days. My crystal ball is currently in the shop so I can’t tell you for sure when the bleeding will end. But what we can do is take the measured move and figure out some logical spots where a bounce could potentially start.
We said in a post last week about this Symmetrical Triangle that the move out of the consolidation would likely be about 75 points. (This number comes from the size of the base ~1290 high and ~1215 low = about 75 points). The breakdown occurred around the 1235 level so the logical measured move should take the S&P500 down to about 1160. As you can see in the chart below, this area is also where we find the 61.8% Fibonacci retracement from the entire October move up.
During this correction, I’ve been consistently in the camp that this is just that – a correction. The breadth of the market is confirming that according to the good folks over at Bespoke Investment Group. But we’re watching the true test this thesis before our very eyes. If this last line of defense cannot hold for the bulls, then a retest of the October lows is probably in the cards. My opinion is that support levels should hold, but manage risk accordingly. When in doubt, get smaller – there’s nothing wrong with a little cashola.