Global Sell-off in Progress - Levels to Watch

We have seen this so many times: Markets worldwide selling off as Americans try to enjoy a long weekend. After Friday's session, you could almost smell a labor day stock massacre. At the time of this writing, Dow futures are down another 200 points after being down 250 on Friday. This morning's premarket action takes us to around the 1150 level in the S&P500 that we have discussed here over and over again.

This chart shows the S&P500 ($SPX) in 60-minute time frames. If the important 1150 level does not hold, I would expect a sell-off to retest last month's lows near 1120:

But this 1150 is the real key. If it does not hold, and 1120 is tested AGAIN, I would not expect 1120 to hold for very long. In my book, triple-bottoms don't exist. I would never trade based on something like that working. I would be on the short side in an opportunity like this. It goes back to what we always say, "the more times a level is tested, the higher the likelihood that it breaks".

Taking it back a little bit further, lets review our key Fibonacci levels to see whats next. Where could buyers reemerge to start a nice sustainable rally that we could trade on the long side? Again, these numbers are all based on breaks that have not occurred yet, but we want to be ready, we want to have a plan, and we want to execute.

This chart takes us back to the beginning of the bull rally that began in March of 2009. The 50% retracement of that move takes us to about 1020.This is also right at last summers lows which adds more significance to this level.

We are thinking 3-4 steps ahead here. So keep that in mind as you're calculating percentage moves down to multiple retracement levels. More importantly, just because the math gets us to those levels does not mean that buyers will show up. We want to be aware of the fact that these levels exist. We want to be aware of the fact that big money is watching these levels. We want LOOK for buyers to show up, and trade accordingly if they do. In other words, as we approach these areas, we want to look a little closer, that's all.

Good luck out there this week, I expect volatility to continue. This volatility brings us more opportunities on both the long and the short side. Manage risk. If you cannot handle the big swings, stay out - nothing wrong with that.