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Barring a swift reversal in the last thirty minutes of trading today, we will close below 1120 on the S&P 500 for the first time since September 2010. The small cap-led Russell 2000 Index has been slammed, and the materials and energy stocks continue to smack of forced liquidations. Coal names are down 10-15%, and energy names 5-10%, which is certainly not healthy. The temptation to bottom pick is clearly in the air, but the issue there is whether too many people are looking to fade this market. If everyone is looking for a reason to go long, then maybe there is no reason at all. I am still keeping an open mind, but a close below 1120 should be taken very seriously. The bulls have to negate confirmation of this close below by quickly recapturing it this week. Below 1120, I am looking at 1077, which marked the lows in the futures from early-August, and then 1040-1010, which marked the lows from 2010.
Again, I do not want to get too far ahead of myself since this breakdown has yet to be confirmed. However, the breakdown does need to be respected, as you can see by the vicious destruction of capital taking place in the market today.
