It's been difficult for me, even with my basically perfectly timed call of the market top on 1/30/18 (See Below) to know when to get back into the market to buy DIA , QQQ , SPY or other index funds, or to possibly buy some puts on those same indexes and play a swing trade. Every massive buyback seems to be followed by a massive drop , and every massive drop seems to be followed by a massive buyback. 400 and 500 point swings, even upwards of 1000 points a day are happening almost daily! So what's an investor to do?
I agree with the long-term philosophy that the market will eventually go upwards from this correction, but the average correction lasts more than 3 months and around 14% drop , and we are nowhere close to that. And I also agree with the bears that there's no reason to buy at still overvalued and overbought conditions if the market will still potentially experience more massive drops. Looking at and support levels gives us a better idea what to expect.
First of all, starting from 2/18, the trend is CLEARLY downwards. We see lower highs for every buyback, massive or not, and lower lows for every selloff. After nearly 2 weeks of data, this is quite clear. So from a strictly TREND perspective, there seems to be more selling off to continue. We have just come off of 2 pretty large buy-back days, and based on the DOWNWARD , a break above 25000 or so on DJI would be . However, assuming the selloff continues, let's now look at SUPPORTS. The first level of SUPPORT (S1) would seem to be around 22750 on DJI, which would bring us back to around mid-November 2017 levels (Note that December 2017 levels of support of 24000 were already tested/broken on 2/9/18). If this S1 of ~22750 or so is broken, the next level we would test (S2) would be the mid-October 2017 levels of 22350 or so. The last level of support I can see (S3) is 21700 or so, or September 2017 levels, if S2 (22350) is broken. Keep in mind that this S3 level would represent almost a 20% drop (or near the definition of a bear market), if it occurred.
Will all of these happen? Will the market/DJI continue with the sell-off bottoming through supports until that key 21700 level that defines a bear market scenario is breached? That I can't answer. But based on the downward , I don't think the selling is done and I DO think there is another large selloff after we bounce off the upper downward-trend line, and that we test 22750 (S1) support easily by later this week. 22350 (S2) support is only another 400 point drop after that, which is not that hard to imagine. Keep in mind that ALL 3 of these supports could be taken out by just ONE 1000 point drop day, which as we know we have seen more than 2-3 times already in February 2018.
(DISCLAIMER: I'm mostly cash now but have a short position/puts on QQQ , and may add puts on DIA/SPY soon. This information may be useful in determining when to start opening up a long position, or possibly when to BTFD or STFR for a short-term swing play, but as everyone knows, it is very difficult to time the market. Do your due diligence and examine risks)