Three Charts You Need On Your Screen

First is the Nifty Free Float Small-Cap 100 Index, which has been the leader to the downside and continues to crash after failing to hold above 5,700 a few weeks ago. Given the break of 5,100 and 4,750, a test of the 2016 lows and the 161.8% Fibonacci Extension of the most recent consolidation at 4,300 looks likely.

We'd expect at least a pause at that level, but in this environment where behavior and emotions take over, there's potential for overshoot of logical support levels...much like we're seeing across global markets.

Click on chart to enlarge view.

Next is the Nifty Bank Index, which is down near the bottom of a 2-year range and deeply oversold with the rest of the market. This is the largest sector of the market, so until it can stop crashing and stabilize, there's no reason to be buying stocks. Again, 23,800 is a very logical support level, but other potential targets are 22,800 and 20,500 if the selling continues.

Last is Indian interest rates. Money flows to where it is treated best, so until we start to see some stability in rates then it's unlikely that stocks will be able to find their footing. We're starting to see some of that in the US, but not enough to get excited about buying stocks again. Until rates in India and around the world can stop collapsing, it's unlikely that stocks will be able to put in a tradeable low.

We are in the midst of a historic market decline. The market has been telling us for weeks that a defensive posture has been appropriate and it continues to work. Heavy cash positions, Bonds, and patience are the best tools available for anyone with an intermediate or longer-term timeframe.

Let the intraday and short-term traders play this volatile environment, that's where they can thrive. For those of us looking to hold stocks several weeks to several months, or longer, defense and capital preservation are the only priorities right now.

A lot of you out there are worried about catching "the bottom." We all are, it's just human nature, but remember that you don't have to buy the exact low in order to make money. Volatility begets volatility, so expect continued large swings in both directions in the near-term.

In the meantime, we will use this time to identify the stocks that are holding up well on a relative basis, so that we can participate when they ultimately begin leading to the upside again. There will be plenty of opportunities to make money once this volatility subsides, but only for those who were able to keep it during this vicious decline.

In a sea of noise, keep an eye on these three charts to signal what's ahead.

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Allstarcharts Team