So what's next? Here are our conclusions, with the details following below:
- Most importantly, as bad as the fall this week was, there's no lower low yet, in either the indices or sectors. Underestimating the strength of the uptrend was a mistake for most in 2013. The December lows (176.5 in SPY) are key to the uptrend.
- The indices ended the week 'oversold'. Typically, a back test of at least the 50-dma follows after the first break below in more than a month. That seems likely. A second break below the 50-dma obviously signals more downside ahead.
- A majority of the telltale signs of a durable bottom are not yet present. This suggests that any immediate bounce is sellable.
- There is reason to suspect that a larger 7-10% correction is in store, to at least 165 to 171. That would match the corrections in April and September 2012 and May 2013. If that is the case, SPY will not see a new high for at least 3 months and probably more than 6 months.