The 'real' monsters are unmasked a bit more; as China's 'emergency' move to suspend 'circuit-breakers 'turned Shanghai futures around, and the S&P in the U.S. as well. Whether that will persist for China into Friday is pending (but I lean toward China trying to hold things together, and the market will likely rally early there; but hard to say if China falters later as the session goes on, as Oil is lower and Tokyo is starting Friday down 1% or so; it will likely rebound with China; but also running-in shorts, with no underlying structural improvement). 

Also 'Emerging Market' ETF's have not just broken but basically have collapsed (that means more over there, than it does here; however all along I've said way more downside and too soon to consider even with a US currency advantage). That's why I've called these (for over a year) 'submerging markets' not ready. It is reasonable to expect a rebound; but we'd be real careful about chasing that, or playing for it. 

We do not have a 'crescendo of selling', which is now getting pundit attention of course way-after optimum times to lighten-up; and typically before a rebound of a temporary nature. Funny how they notice washout absence, but failed to note poor internals on all S&P, or market rallies of recent months, beyond running-in shorts periodically. That they 'now' recognize what 'already' happened smacks of being prepared for a little turnaround within context of the overall downtrend. 

Regardless of Chinese moves to stabilize, this is and has been about multiples absurdly high for the pace of growth the US sees, rather than what delusional estimates contended or still contend. This has been a primary point of my S&P overall analysis for many months; it is key to the 'extent' this market can drop fundamentally over the course of the Bear Market that dates to last Summer; and has a relationship with a perspective that allows a peak-to-trough  move (not even allowing for overruns) that could exceed any type of mere 'correction' the technicians typically 'allow'.

I have consistently warned that elevated pricing without fundamentals, was itself ominous, as we had downgrades of corporate and GDP guidance throughout 2015. Then the retreat of Fed stimulus sealed the deal; as (finally) some analysts will concede. They have to; because the moment you go into this week, and we began the year with the worst start in eons, you had a slew of scrambling strategists suggesting 'sell the rallies' (our year-long view).

'Tactically' .. there's more significance than meets-the-surface surrounding the 'worst' first four days of a New Year in stock market history over at least the last 100 years (worst as media reports it; best if you were looking for a 'brick wall' of resistance as soon as gains could be taken i this new tax year). And by the way it's a 5% decline this week that has them in panic; wait until it's 15% and see. It should again be noted I don't expect all that in one-fell-swoop; it's a 'process'.

The significance is it has been 'too fast'. You've already got 'always a bull' types saying to look for bargains, while they 'now' admit or claim the US market didn't look good for months (funny they didn't mention it then..oh well..). But that's not the point either. What is: institutions and funds have not had TIME to distribute enough. Those that weren't greedy did so all-through 2015; but still near-record margin (often for leverage) persists. If you want the making's of a snaking drop, that has more to do with liquidity , than wavering Chinese dragons, that's where you should look. If they throw cash at this market to chase China stabilization, as clearly Beijing is scrambling to engineer) that will consumer available funds in a hurry; and perhaps set-up the next phase of decline. 

Rather than a 'flash crash' in slow motion this week (which we have), what has not occurred yet is 'survival' liquidation moves to preserve basic capital. There's no way 'most' funds (or even investors seeking redemptions at a time of year of course they planned, or were urged by their financial planners, to reinvest, are at all able to cope with the pace of contraction). They may have to sort of do an emergency C-section to rescue their basic capital. (Bad analogy, but how you'd get a washout prior to at least a meaningful attempt at a counter-trend rally.) I'm thinking this aspect comes after a rebound based on Chinese intervention; as it's not the cavalry over there (think Genghis Khan saving the Forbidden City if one wants to have fun with it), but the lack of a viable PPT (Plunge Protection Team) over here, with sufficient ammunition to truly turn this around. 

Bottom-line: naturally a washout not inhibited by Chinese intervention or other sorts of intervening disruptions would be best for true 'price discovery' even for a short-term low. But I'm thinking they won't let the market function so normally. So we tightened controls on probably the best-ever single-guideline short-sale(and last year we nailed a good number of peaks and gains); ahead incredibly by 110 handles so far. (See below for more daily commentary.)  

In-sum: a lot depends on whether China 'fixes' Yuan rates and commits to firm time limits before further adjustments. That, more so than circuit breakers, may be at the heart of what it would take to get this market to rebound 'temporarily'.

Is this a 2008 sequel? Most say no. We say it's not exactly same (never is), but the liquidity aspect is; the real estate aspect can't be, but can decline (today I'd noticed that the most expensive mansion listed for sale in Naples, Florida for a paltry $80 million, and not moving for months, was sold for $45 million, nearly a half-price offer acceptance). We already noted that Russian buyers are gone; Canadians are definitely out-of-the-high-end picture for now; Europeans other than the Brits (the Pound is relatively strong) are definitely not spending here; and the Chinese flow (mostly into West Coast or Vancouver property) is hurt by these latest devaluations. 

Most of the spending we've had in recent years was due to financial asset lifts; not increases in normal household income from 'actual' work. That means peak housing and autos, along with peak oil and stocks, can impact a very mediocre broad cross-section of Middle America and throttle consumption further. At the same time, 'ultimately', this sets-up an astounding comeback down the line, as that in-part will be aided by affordable everything, after 'la deluge'  bases-out.   

Conclusion: we're still short from last week at March S&P / E-mini 2065. We are on-guard for some sort of rally within-context of a broader downtrend; fully expecting to gradually exit that current 'live' trading guideline as outlined.