The big picture seems fairly clear to me: the intermediate trend has changed. I can't be 100% certain yet, obviously, but unless the bulls can suddenly pull out a miracle (read: new liquidity flood from somewhere -- i.e., the Fed or the EU), the pattern looks pretty straightforward. This could mark a very major turn for the markets, with the ultimate expectation being that the October lows will be broken at the minimum -- and with the distinct potential for things to get much worse. As it unfolds a bit further, we'll look at longer-term targets.
The immediate intermediate (try saying that five times fast) picture is shown below on the SPX chart. The expectation is that this decline is only part of a much larger decline, which is in turn part of an even larger decline.
The question I've been trying to answer tonight pertains more to the very short-term picture. It's possible that red wave i bottomed yesterday, and the market could now be in the process of forming red wave ii. This probably makes the most "sense" from a technical perspective, but when I study the one-minute wave counts, I'm more inclined to believe that there's at least one more slight new low coming before the larger wave ii snap-back rally.
I've outlined both short term potentials on the charts below. In the grand scheme, both views are intermediate-term bearish -- so this is simply an attempt to pick apart and analyze the smallest wave structures.
The first chart shows the view I'm favoring by a margin of 70% to 30% vs. the second chart.
There's certainly enough squiggles on the chart to count the decline as complete, and it always gets dangerous trying to chase that last "maybe" wave. In any case, I view the count below as the less likely short-term resolution.
There are also exceedingly bearish ways to count the short-term picture, which would have the market only winding up for an even faster drop, but there's no way to know ahead of time if those are going to play out, and they're always the underdog -- so I'll save those options for discussion only if the 1340 zone is materially broken. That's really the key level to watch at the moment, in my opinion.
The Volatility Index (VIX) chart reveals the potential danger of a more immediately bearish resolution. The VIX is commonly called the "Fear Index" by the mainstream media pundits, who have nothing better to do than sit around thinking up clever names for things.
Anyway, the bottom line is that what's good for VIX is bad for stocks, and vice-versa. The chart shows that the 21-22 resistance zone is important for VIX, and a breakout there could send it rocketing -- which by correlation implies that stocks would be plummeting. If my short-term counts are correct, that zone may hold one last time before it breaks.
In conclusion, I believe the trend has changed at intermediate degree, and that the bull market is most likely over. The market is in a very dangerous position now, and barring a substantial change in the environment going forward, I believe bounces should be sold.
Over the very short-term, I do expect at least some slightly lower lows before a larger bounce develops... though I'm less certain of this view than I am of the intermediate view. Trade safe.