When selling is relentless on days like today, I like to step back and take a tactical approach, asking myself when would I get long? What levels with other traders want to get long? And most important, when would institutions want to go long?
January's run was great... however when the indexes go up without taking many if any breaks for consolidation, it creates the kind of scenario we experienced today where selling picks up speed and no obvious buy zones are near to help stop the push downward. Then stops get triggered, algo's do their work, and before you know it CNBC is full on bear mode, apparently forgetting how they were all of January.
Bottom line, where should we see solid lines of support (buy zones)? We blew through our first "light" in the $273 range. We quickly took out the next level at $268 and we closed near the lows in the $265 area. Technically we have a small buy zone box right at current levels, but the next best area that would be a much better platform for a good bounce is around $258.30. The bottom of that box is near $255. If we get to this target area, I would expect price to react positively and spring upward for a decent bounce.
If that level breaks, the next target is in the $248.80 area with lots of support just underneath.
Keep in mind that because we have broken the above buy zones, each has now turned into a sell zone. Distribution has been heavy since last Friday so for the short term, bounces should be respected as just that, a bounce. The long term thesis is still very much intact.
Know your zones, stay patient, dedicated, and focused.
Also, something of note today was Options Premium on Calls, especially in SPY. For those who may not follow options everyday, probably good to start by understanding SPY, Monthlies and Weeklies.
Sure, the VIX was up today, but VXX closed on the lows of the day. This is important because during the day, especially mid-day action in Calls was rather strange. The price of SPY calls, especially those Out of the Money were going up or at least holding pretty steady, even as SPY was selling off a bit. This doesn't happen often - but when it does, it usually means FOMO is kicking in (Fear of Missing Out). Traders were no longer as concerned about further downside, they were positioning for a possible bounce and squeeze higher... and we did. Hopefully this info can be useful for you in the future.