Top Line: The market could have turned the corner today. The stock market tried to start out the day higher but reversed and ended down on the day. Meanwhile the volatility indexes that have been lower day after day also reversed to the upside as stocks reversed to the downside setting us up for some more downside.
We do have to mention some pervasive talk about a head and shoulders top formation. We have read about this formation for the past few days and it has some merit except when it is so widely expected.
Normally, the head and shoulders pattern can indicate a strong failure at the neckline with a measured move after that which is about equal to the distance from the top of the head to the neckline. TRANSLATION: Looking at the SP500, the head is around 950-955 and the neckline is around 875-890 so if the market chooses to break through the neckline over the next few weeks the target would be a distance of about 75 points from the neckline...meaning the SP500 could drop to around 800.
We don't find this very satisfying since so many people are aware of it. We do favor a break of the neckline to alleviate the overbought condition indicated by the volatility indexes but we don't like the move all the way down to 800. It's just too far. We have said that the SP500 would go to around 850 and we are sticking to it. The avalanche of selling could take the SP500 down from 875 to 850 in about two heartbeats with the second one being enough to stop your heart, but we still think much below 850 is wishing for something you can't have.
As a reminder, the market is closed on Friday and we will post on Sunday evening.
More Jackson pics tonight and there should be more tomorrow evening as well. With the market closed we may still put more pictures of Jackson up over the next few days.