Stocks this morning attempted a short rally and then fell back breaking through the important 1930 technical barrier. While 1930 is light support, it is the only barrier left before the market can hit 1900 which will be just outside the 200 day exponential moving average (EMA) and signal a solid correction underway for stocks not just a pullback.
Market Direction SPX 2014 Daily Chart
The SPX chart for this year shows why so many investors are worried. We have had three prior pullbacks this year all of which were contained and none of which did technical damage to the ongoing bull market. The valuations for those pullbacks are below. The last pullback in August took the SPX down to 1904 or roughly 1900 on the SPX. A break of 1900 in this pullback would set the market up into a full correction and could mean a push back to 1870 and then 1850 the next levels of support.
SPX one year daily chart for Oct 10 2014
Will 1900 Break?
A break below 1900 looks more ominous in this pullback than the pullback in August. As well in August the market could have pullback further and still not broken the bull market uptrend. The strength of rallies is important in a bull market. The Feb pullback saw a further rally of about 54 points. The pullback in April saw a further rally of roughly 100 points but the pullback in August has seen a further rally of just around 32 points which is shallow. As well the last rally saw low volume and very little participation across all sectors of the stock market. The market this year has shown signs of aging.
Rally Strength Oct 10 2014
Protection Should Be In Place
I have written repeatedly about the importance of putting in place some protection and to set up some trades even with small amounts of capital to enjoy profits on the way down. The Ultra Short ETFs are an exceptional method as they have high liquidity. Those who has less conviction to the downside can choose a 2 times Ultra short and those with more experience and perhaps more conviction on market direction trends could consider the 3 times Ultra Pro Short which is what I trade both up and down.
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