| As of my last look, the S&P 500 is up about 14 points (+1.2%) for the day. It's certainly a step in the right direction if you're a bull, and especially welcome after the market's 4.4% slide from the November high to the low. Before any of us start to count our chickens before they're hatched though, I think we need to take a realistic look at the bigger picture here.
There are three keys to the bearish argument:
1. With today's big pop, most of the major indices have managed to crawl back above their 20-day moving average lines. However, the SPX will need to get - and stay - above that mark first before we even need to bother talking about further upside. Don't forget we saw a fake-out move back above the 20-day average last week.
 2. The VIX has yet to spike; it's barely even budged despite the most rattling correction we've seen since August. This is by far the strangest aspect of our chart and the current scenario. Not that it has to skyrocket to 40, but it's as if traders are completely blowing off the fact that the market has decisively fallen out of its bullish channel, and has yet to move back into it. Until we see fear spike - via a big upward move from the VIX - we can't really say we've gotten a healthy capitulatory move.
3. Despite today's advance, the selling volume on the way down from the November 5th peak has been much healthier and more consistent then the buying volume for the last leg of the rally. That sort of taints today's (and probably Friday's) gains.
So, almost needless to say, I'm a bear. I'm only a near-term bear though.
I asked a hypothetical question above...."where will it all end?" For the S&P 500, barring some curve ball between now and then, I think it will end around 1131.
That's not some number that was pulled out of a hat. If you look at the chart, you'll see a lot of support lines converging there. The 100-day moving average line just crossed the 200-day line [both are biggies, even if only for psychological reasons] near there, while the 1131 mark was also a major ceiling in June and August [resistance has a way of becoming support]. And lastly, the lower Bollinger band (red) that's played such an important support role several times over the last few months will be right around 1131 by the time the market could reach it.
While any dip of any size isn't something any buy-and-hold investor wants to see, it's also nothing that should scare the daylights out of anybody.... even if the media wants to do that.
Falling from the current price of 1194 to 1131 would be about a 5.5% dip. Add that to the 2.5% we're down right now from the November high, and what you get is a total correction of only 8.0%.
If the number rings a bell, it may be because it's very close to the 'average' correction of 9.8% I calculated in last week's newsletter. Maybe we fall a little more than 8%, or maybe a little less. It doesn't really matter. The point is, we're apt to head closer to 1131 before we start to move away form it again in a meaningful way. Once we burn off enough of this overbought pressure and see enough doubt from the market's participants, then we'll (I'll) roll back in with some new long trades.
And no, it's not a coincidence how this correction is likely to be so well aligned with the typical corrective move, nor is it a coincidence that the ebbs and flows are so well framed by one or more technical indicators. The market actually moves in fairly predictable ways - you just have to know what to look for, and how to adapt to the ongoing string of new clues (not being adaptive is usually the tripwire for investors who are married to one indicator or one methodology).
 As always, the usual disclaimers apply - nobody (including me) knows with absolute certainty what's going to happen next, and we should be ready to deal with all possible outcomes.
If you're a market handicapper or odds-maker like I am though, then you'll know the odds favor more downside ahead. Not a lot, but enough.
Have a great Thanksgiving.
Helping you get more out of the market,
James Brumley
Editor - Small Cap Network | 
