9:00am (EST)
We should have known Tuesday’s push to resistance wasn’t going to be smooth sailing as we expected some kind of back test before a breakthrough rally, but wow, not 3.5%. The good news is that we penciled-in a test back to support, which held, so there was no need for us, or you, to panic on the pullback. Of course, there could be more damage but like we said yesterday, the bears have a long way to go before we see a trend reversal. However, today will be a big test.
The Dow dropped 389 points, or 3.2%, to finish at 11,781. The index traded to a low of 11,736 which stretched our 11,800 downside target but we said 11,600 would provide backup. It is crucial the bulls hold this level today and for the rest of the week.
The S&P tanked 47 points, or 3.7%, to settle at 1,229. The index kissed a low of 1,226 but held 1,225 which was much needed. There is further risk down to 1,200 while 1,250 once again becomes short-term resistance.
The Nasdaq got punished for 106 points, or 3.9%, and ended at 2,621. Tech dropped to a low of 2,617 and we were looking for 2,600 to hold. Although we got the check mark, we still have to respect 2,550-2,500 if the bears continue where they left off yesterday.
The S&P Volatility Index (VIX, 36.16, up 8.68) soared 32% and halfway pushed the 40 level which is also a crucial area we need to watch. The VIX came into the week just a hair above 30 and traded down to 27.47 on Tuesday. Our chart works says the VIX is going to 22 which translates into a higher market, but if the index trips 40, all bets are off.
We are on the verge of closing or 30th-straight winning option trade since late September and while we know at some point all streaks come to an end, we are going to continue playing this volatility until it does.
We told you, we warned you, and we encouraged you to get back into this market and yesterday’s drubbing has presented some intriguing opportunities. We have a lot to cover this morning inside our Members Area including more thoughts on the new trade we opened yesterday so let’s get on it.
Also, you know the drill, stay on the lookout for Profit Alerts and possible New Trades if we need to make adjustments or if we see something we like.
As we head to press, futures are showing a strong open. Dow futures are up 144 points to 11,876 while the S&P 500 futures are higher by 18 points to 1,244. The Nasdaq 100 futures are showing a pop of 30 points to 2,341.
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