Anyway, it is not as if this action took us by surprise as we had talked about caution flags over the weekend. What did take us by surprise however was the magnitude of the move in one day.
I had not anticipated such a strong move in such a short period of time and as much as I would like to tell you that I got a slice of the downside move, I did not.
So now what???
Well, like I said before. This first corrective move is going to tell us alot about the very nature and technical position of the market. It is imperative that we have a normal corrective phase which means the market should NOT penetrate the downside risk target of 131.23 basis the SPY.
Should this occur, I am afraid that I will have no choice but to become quite bearish on the market and I will seriously have to re-evaluate my thinking of a strong intermediate term bottom being put into place.
But before I go off into doom and gloom land, lets remember that the market has done nothing so far that indicates it has abandoned the buy weakness mode that our models have dictated and being such, we continue to follow our strategy of buying weakness at this point.
There is some interesting commentary on the next set of charts, so be sure to check them out.
There are some very curious similarities in these two charts below as I am sure you will agree.
Something of this nature is certainly not enough to warrant aggressive action in one corner or the other, but it is enough to help support evidence already existing.
The first chart is the rally in mid August 2007 and the subsequent 2 day correction before the market continued higher. As we have been saying. the market is and continues to be in a buy weakness mode and thus we embrace this decline as opportunity and not trouble.