Another big hit to markets spent markets spinning lower. The Russell 2000 took the worst of it with a 9.7% loss, closing at the low of the day on higher volume distribution. The loss has been so strong and so quick it has moved down to the 5% zone of historically weak action dating back to 1987; this is a 'buy' zone opportunity, although I would like to see some stability in price action before confirming this as swing low. However, if you are an investor with a long term window, now is a time to be building up a position.

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The S&P finished the day 10% below its 200-day MA, which is just shy of the 5% of historic weak action going back to 1950; last month, the index was trading in a 'sell' zone of historic strong action - now it has come full circle for traders, trading inside the 'buy' zone. Volume surged in confirmed distribution with technicals net negative, while relative performance against Small Caps charged hi

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The last index is the Nasdaq. As one of the stronger indices it didn't undercut its 200-day MA as much as the S&P or Russell 2000. It did, however, manage to finish at the lows of the day on confirmed distribution as the 7%+ loss will do little to ease confidence.

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With indices having swung from extreme overbought to oversold in the space of two months, what markets need now is a period of consolidation to digest losses. However, the Coronavirus remains unknown as to its impact on supply chains, manufacturing, and consumer demand. Add to that an oil price war and a Trump administration incapable of managing the crisis and it's hard to see where this may stall. 

However, smart traders will know when to react; if indices end up trading 25% below their 200-day MA it will mark a scenario where losses are in 1% zone of worst historic action. While that is a situation that is unlikely to look like a good time to buy, hindsight has often shown it to be positive. The tables at the end of this post have been updated to reflect some loss scenarios.