Markets Turn Down Lower, Now What?

Well, the S&P 500 closed below its 20 period moving average today, breaking the short term up-trend. This is negative, but not overwhelmingly negative. My overall long bias has not changed. The current correction is just larger than I originally anticipated.

I'm still holding my swing-long SPY first 3d position. I will add the 2nd 3d position around 116.20 to 116.60 if the market ticks down that far.

There is certainly further downside potential. The 50 MA should provide support and currently sits at 1161.50 on the ES, so there is potential it is tested this week. Doesn't look like we have seen the bottom of this correction yet. I will continue to scalp the ES and manage my swing-long SPY position until it looks like the bottom is in. I will keep posting my thoughts as we see where price takes us.

What Does Today's Selling Mean for Future Market Direction

Today's action is very negative obviously. We have already traded down 20 points from yesterday's close. Let's see if the market has found an intra-day bottom... At best, I could see a recovery back to the low 1190's on the ES. That would be a good sign and it would create some indecision as far as future direction. If we don't close back up above 1190, I will have to lean toward changing my bias to negative. The way it is looking, we aren't going to trade back up and so I am leaning toward admitting I was wrong in my assessments. We'll have to wait and see.

European sovereign debt issues are weighing on the market and driving up the dollar. Negative market action in China isn't helping matters either. Whether or not the market can rebound today is crucial for the overall health of the US markets. So far, no signs of any positive momentum or reversal. We are making new lows as I type this...

At Day's end, I will give an update to my market bias and what I am thinking...

Worldwide Markets Sell Overnight

The Chinese market sold off heavily on continued fears that the Chinese Central Banks will tighten monetary policy by raising interest rates. Worldwide markets followed suit as the Hang Seng and Nikkei both closed lower. European markets are currently trading lower as the FTSE, DAX and CAC are all seeing morning declines.

US Futures followed suit, trading down in the overnight session. The ES found support at 1186.50 around 7:00am EST. This happens to be the price the ES was trading at right before the Fed announced the $600 Billion QE2 last Wednesday. I believe the 1186-1187 level will hold as support. If not, there is very solid support below at 1180. 1180 acted as solid resistance throughout much of the month of October. In any case, I continue to be bullish in the short term. I expect a close at least above 1194 on the ES today, perhaps right around 1200. A close lower than 1194 will be negative for US markets.

Levels to watch this morning (ES):

resistance above at 1193, 1196-1197, 1202-1203, 1205
support below at 1186-1187, 1179-1180