Very real possibility of another test of the 1340 area

By Lawrence G. McMillan

In this morning’s comment (in the Volatility Report), it was shown that several of the other indicators had turned negative as of yesterday’s close.  That foreshadowed the selling we’re seeing today – the most negative day since last November (at least at this point).   The heavy selling today has seen $SPX slice right through the supposed support at 1370, creating the very real possibility of another test of the 1340 area.  That support was last tested just over a month ago, and it halted the minor decline that was in place at that time.  We would expect the 1340 level to offer support once again, if tested. 

Breadth is very negative, and at this point, it looks like today has a real good chance of being a “90% down day.”  That appellation is a recipe for a short term bounce (not to mention how oversold the breadth oscillators have quickly gotten).  Still, an oversold market can be a dangerous one, despite the short-term bounces.

Today’s action will certainly strengthen the new sell signals in the equity-only put-call ratios...

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