Why worry?
There should be laughter after pain
There should be sunshine after rain
These things have always been the same
So, why worry now?
Why worry now?

Mark Knopfler, Dire Straits

There’s a sense of panic in the air as ES has now fallen over 100 points from its recent highs.  It’s a not-so-whopping 3.6%.  But, following the September meltup where the market could do no wrong, it feels more like 36%.  Wait till the next leg down comes along…ES tagged our next downside target this morning.  Our analog is back on track, which means this is where things get tricky.

continued for members…The bigger picture for ES and SPX…

At some point, it seems likely that the falling white channel will break down.  The likely outcome is today or tomorrow in order to tag the purple flag pattern bottom where it intersects with the white .500 Fib at 2900.75 (also a nice, round number.)

There’s a corresponding target in SPX at 2898.47. Flag patterns are channels.  ES’ and SPX’s are no exception.  So, bulls might attempt to resume control at this point.  Whether or not they are able to, it might well look as though they have – resulting in a bounce that tests bears’ resolve.

Note that just below the flag bottoms are channel bottoms which represent the most bullish case from the Dec 2018 lows.  The channels are shown below in white. In fact, you could make a case for the SPX channel running right through the Aug 23 low and the SMA100 today or tomorrow morning. So, how will we know?  Ideally, SPX will plummet right through the SMA100.  But, if not, perhaps VIX will offer some clues.  It has pushed above it former highs and has reached the .786 channel line.  A rise above 19.87 or so will usher in lower lows for SPX.

Likewise, a breakdown in CL and RB would provide a solid signal.  CL bounced twice at 52.87 (came close a third time.)  A drop through it would bolster the bears.  Keep in mind, we’ll get EIA inventory at 10:30 this morning.For RB, the horizontal support is at 1.5642. And, there’s always USDJPY which, so far, has refused to re-enter the channel from which it recently broke out.  It currently stands around 107.42.  Bears have an all-clear as long as it drops below this level.FWIW, NKD still indicates further downside.

UPDATE:  9:55 AM

ES just reached its flag bottom.  SPX has a few points to go.  Keep in mind its H&S target of 2893.41. A bounce here up to backtest the SMA100 would be tricky, especially as everything seems to have ground to a halt.  VIX is sitting just above the .618 retrace from the top of the flag.UPDATE:  10:35 AM

Oops… Though SPX has dropped through its .618, ES has one coming up at 2871.25 — also the bottom of ES’s white channel from Dec as shown above.  If it breaks through this support, we should see the SMA200 pretty quickly.  ES’ SMA200 is at 2839, while SPX’s is at 2835.97.

Plenty of folks will also be watching DJI (which has reached its red .618) and its SMA200 at 25840.  Our next target is a little lower at 25760. Note that ZN has pushed back into its rising red channel.UPDATE:  12:20 PM

Watch out for a potential bounce as ES approaches its .618 at 2871.25.  It lines up with the dreaded 12:34pm, a frequent intraday low, and would represent an approx 2% drop on the day.

My gut tells me we’ll get a bounce here or at the SMA200 and the rest of the downside on Friday Sep 4.  But, that’s just a hunch.

UPDATE: 3:$5 PM

This would be a great time for a final plunge down to DJI’s SMA200 or ES’ .618 (missed it by 2.75 earlier.)