SPX Moves Lower to 1,110 Support...

DJIA                            10,380.43 -139.89 -1.33%
SP500                           1,110.88   -17.27 -1.53%
COMPQ                        2,265.64   -54.00 -2.33%
Russell 2000                    653.00   -19.23 -2.86%

Exchange                   NYSE              NASD
Advancing                     889                 613
Declining                    2,242              2,129

Oil        $75.11           -2.00
Gold    $1,210.00      +13.10
SOX      346.75           -5.79
VIX         40.95          +8.15

Index  Direction     Confirmation
VIX      Up              Yes – SPX
SOX    Down          Yes – COMPQ

Key Resistance Levels
1,125 - 1,133 = 1,075 BO chart target - Sep 08 Low
1,145 = 1,133 BO chart target – Dec 31 Low
1,155 = 1,119 BO chart target – Dec 23
1,178 = Fib extension
Key Support Levels
1,105 - 1,113 = November High
1,101 = October High
1,087 = Nov 10 Channel low
1,075 = 875 Breakout Chart Target
1,044 - 1,050 = Oct 08 High

This week's correction saw the SPX move from a high of 1,205 to a low of 1.065 with a close at 1,110.

The correction was similar in structure to several previous high volatility sell offs since 1987. This sell off had a unique drop from 2:42 pm to 2:47 pm when the Dow INDU dropped from 10,448 to a low of  9,875. A 573 point drop in just five minutes. This swift drop was followed by a bounce at 2:48 pm that gapped 236 points from 9,928 to 10,164. The Dow INDU then rose to 10, 548 in the next 8 minutes. Between 2:42 pm and 2:57 pm or just 15 minutes the Dow INDU made a round trip move of 1,156 points.

Look at these Charts

(click image to enlarge)

While it is unclear exactly what happened in this 15 minutes, what any experienced professional should realize is that this move was caused by a liquidity squeeze induced by heavy selling order flow and little buying until 2:28 pm.

While this move was dramatic in both its speed and total point move, it is essentially a correction in a long term up trend in the early stages of an economic recovery.

I suggested, in Friday's Weekly Wrap, for traders to study the corrections in May/June 2006 and February 2007 to develop a sense of prior dramatic and intense corrections and how they rebuild in the days and weeks following.

One important realization should be that dramatic sell offs won't necessarily lead to a trend change and that usually capitulation sell offs with dramatic bounces usually mark the bottom of the correction.

Traders still need to focus on trend and buy where they are supposed to buy and sell where they are supposed to sell according to their rules. Don't let the dramatic nature of the correction distract you from the action you should take.

Dave's Insight: Follow Your Rules...still the right action to take.

Guidance:

The SPX fell to its 1,110 support level in a short term trend continuation down trend.

More stocks broke their 30 DMA on Friday while just a few stocks are still above support and in their current up trend. There are more stocks below their 30 DMA than above in our watch list.

We will continue to focus on the short term down trend until momentum clearly moves to the upside.

Your mentally flexibility helped you take advantage of the break of support this week.

The VIX rose +8.15 and did confirm the lower close on Friday,.

The short term trend is down.
The six-month trend is neutral.
The twelve-month trend is up.

Continue to focus on and trade setups on the charts of the stocks you watch, trade with the trend and follow your rules.

Adjust your stops according to your rules for up and down trending trades.

AAPL -10.39
QCOM -0.17
GOOG -5.53
BIDU -28.53
NDX 100 stocks stronger than the NDX include: MXIM, DTV, GRMN, ATVI, DISH, ADP, FSLR, MRVL, CERN, PDCO, ADBE, MCHP, GENZ, QCOM AMGN, STX, BIIB, INFY, SBUX, STLD, BBBY, CMCSA, SRCL, INTC, LLTC, SPLS, EXPD, PAYX, CELG, APOL and GOOG.

Weaker than NDX: HANS, WCRX, LINTA, SYMC, VRSN, LBTYA, FWLT, NTAP, NIHD, EXPE, AKAM, WYNN, BIDU, AAPL, YHOO, ISRG, JOYG, EBAY, INTU, PCLN and SHLD.

Stocks to Watch on Monday
Holding Above 30 DMA
NFLX, WHR, AIV, OSTK, ICE, EXBD, FAZ, NTRI
Moving Above 30 DMA = 0

Moving Below 30 DMA = 5
BYI, MCD, SNDK, ZION, PNC
Staying Below 30 DMA
URE, DHR, CRM, GME, SYNA, HLF, SPG, GR, HANS, LXK, STI, WFC, WFMI, WMT, ACN, BA, CAT, LVS, MYGN, SWK, AMX, BKC, DE, DECK, DOW, FAS, FLS, JEC, PCLN, PCP, TSL, UAUA, UNP, USD, USO, UYG, ATW, AMD, BAC, CREE, GES, MA, V, CAM, CHL, SWN, UNG, ATI, BUCY, WLT, CLF, MHS, WCG, ESI, GMCR, GS, FCX, X, PWRD, AGU, IPI, POT, MOS

Intermediate Term Market Trend: Neutral
Short Term Market Trend: Down