The trigger point (make sure you are short) in SPX is the 50-day moving average at 1809.25. I normally would expect to see a stair-step decline through the rest of the week, but anything may happen.

The VIX buy signal (short the SPX) is mid-Cycle resistance at 14.72, only 21 ticks from yesterday’s close. Since it crossed that line only in the last day, there was no point in giving a sell signal.

The amazing thing about the rally is that the Hi-Lo index never gave a buy signal, staying beneath its mid-Cycle resistance at 166.11 during the entire week. That means the entire NYSE was more badly battered by the decline than originally thought. And the low volume rally did nothing to undo the damage.

It is very critical to recognize the “trip wires” since the decline may wipe out all vestiges of liquidity left. Remember, the past year’s rally was likely done almost entirely on margin. A drop below 1737.92 may spark a huge margin liquidation with few or no buyers at all.

Regards,

Tony

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Disclaimer: The content in this article is written for educational and informational purposes only. There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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