With the selling pressure we have seen it was no surprise to see markets record a loss. The degree of selling was relatively modest, but it does put indices in a situation where they need to test the strength of the recent swing low. This may take 2-3 days to play out.

The Russel 2000 (IWM) had the most modest loss of the indices and has a good chance of defending $200. Volume has been declining since the capitulation volume low, suggesting the selling is near done (for now). The MACD will likely trigger a 'buy' tomorrow.

The S&P has still a few days worth of selling before it gets to test the strength of its swing low.

The Nasdaq has perhaps one more day before it tests the low. I will be looking for a spike low in an ideal retest.

The final chart I'll leave you with is the Nasdaq Volatility index. It has cleared declining resistance in a marked acceleration, alongside an upcoming cross of the mid-line in stochastics; be ready for a spike in volatility.

For tomorrow, look for further losses. An ideal scenario will be spike lows on bullish 'hammers' or doji. A more bullish rally off the bat sets up for tests of overhead moving averages. What happens after the first half-hour of trading is likely to set the tone for the rest of the day.

More By This Author:

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