S&P Poised To Match Largest Corrective Dip of 10-year Bull Campaign

The S&P 500 is poised to match the February decline (January 26th to February 9th) by points (342) and by percentage (-11.91%), also the largest pullback since the bull campaign started over 10 years ago. After Monday's close, the S&P 500 nearly tested these metrics at 2597, inching close in the final hour of trade before pulling back up into the finish.

For practical purposes, it can be said that the two down-moves are in symmetry in terms of size, the glaring difference is the disparity between the VIX now and then. Back in February after the initial thrust had been completed, volatility was nearly twice as high (50+ vs 27 ish now).

Whenever moves match previous moves in size, it can suggest a trend change is near. That said, it is extremely early to call a low at this point.  In fact, other indices such as the Dow (DJIA) continue to highlight former support turned resistance at a clear psychological level (25K), which continue to suggest that bears remain overall in control in US equity markets.

If 2597 (S&P 500) is clearly taken-out to the downside, then look out! It would suggest a more meaningful decline is at hand and could suggest that the VIX elevates to the upper 30's before potentially exposing the critical 50 threshold that has exhausted previous points of paranoia.

Stocks Still Not Near The Bottom!

The initial recovery off last week's lows (near Dow 25K) was short-lived, quickly fizzling out ahead of Dow 26K, a key technical retracement. Once a former region of support turned resistance was highlighted, short-term momentum had quickly shifted back to equity bears, allowing for the latest bout of negativity to caryover into this week's price action.This eventually led the Dow (DJIA) to gap lower this past Tuesday near the psychological 25K region, which managed to keep bumpy price-action nearby before closing just below the threshold on late Thursday.

The earnings disappointment overnight, by the two of the largest companies in the world (namely Alphabet & Amazon) not only put pressure on the technology sector, but added near-term technical risks on all equity markets.  More specifically, it puts the Dow in position to start trending lower towards the summer's lows near 24K while counter-rallies remain south of 25K and the 200-day Moving Average (near 25K). Friday's intra-day high briefly probed the October 11th swing low (24,899.70), which also hints that bears remain in control until bulls reclaim 25K and/or the 200-day MA on a daily closing basis.

Wild swings in the market can be tough to manage even for the most seasoned traders. That said, market sentiment and price-action have been rather orderly so far. Equity markets have been increasingly more volatile as seen in the latest bump-up in the VIX to the upper-20's, but nowhere near the panic spike to 50 seen earlier in the year and in 2016.

Moreover, the percent of stocks in the S&P 500 below their 200-day Moving Average broke below -2 standard deviations from the mean and looks like it may need to test the -3 standard deviations threshold similar to moves in 2015 & 2016, before truly bottoming-out.

This, however, does not imply that more volatility is imminent, but merely a reference point to what may be needed to shift both sentiment and price-action back up.

Dow 25k Supports For Now!

The US equity indices exhausted recent selling pressure late last week and now seem poised to put in sizeable retracements. The markets finally witnessed some panic selling, but managed to stabilize both last Thursday & Friday as the Dow Jones Industrial Average probed the key psychological 25,000 level, which supported price-action back in August.

Since then global markets have rallied smartly and if the US equity indices can maintain strength through Wednesday, it should signal further evidence that the worst may be behind us. That said, recent gains are still in corrective territory with respect to the latest decline, so the risk of a downside thrust towards recent lows still exists.

Watch price-action carefully if the 50% retracement of recent weakness is tested towards the end of the week, as it could indicate some time symmetry and signal an end to the latest rally in equities. If the 26,000 region caps the rally in this case it could jeopardize the recovery and could quicklyre-open the 25K region for the Dow once again.

USD/JPY Takes Aim For The 100-day Next

As of Thursday 2PM EST, the USD/JPY looks to be putting-in the 6th straight down day, while the pair is seemingly consolidating Wednesday's big risk-off day. Thursday's price-action in the dollar/yen hints of a temporary bearish exhaustion while global markets have seemingly been caught off-guard by the rapid weakness in equity markets.

Technically, this one week downswing falls into the typical correction variety, which is a 25% retracement or in other words, a one-quarter price retracement of gains since late March, where this bullish drive originated. While, this is normal for a struggling advance that had been showing signs of a struggle in momentum and had recently exhausted, the speed of the latest down move hints of a potential re-test of key 100-day moving average support at 111.23.