I was expecting a small but further drop from Friday’s close. It had not happened. The Monday’s trading was basically flat the whole day. At the end, it was a Doji formed on the chart. At this time, we are very close to a major support area as indicated in the chart below. A rebound can be expected there. However, a Doji on Monday can probably change the market expectation on Tuesday. Meanwhile, I would deal with the uncertainty one way or other. If the market continues on as predicted, that would not be an issue. It is only when it makes unexpected change that would surprise us. The following is what I will do when one of two scenarios occur.

If the markets make an immediate reversal on Tuesday, I will treat it as a rebound. Then, it would be time to clear all open short positions. But NEVER go long (buy call)! This can happen when the Dow hit the support first and reverses or it can open low and close higher. The market is really oversold, so a rebound is imminent.

However, the market can break lower further, which is less likely but possible. I would still want to close open (short) positions and re-assess situation before taking new ones.

The S&P ($SPX) is bearish. Now, I would expect more to come. Again, a rebound can happen at this time as it had hit a new support area. We shall see what can happen next. If this breaks, we can target 1270 at new support.

Unlike the Dow, the S&P has more room to go lower before finding its major support. For this reason, I can still bet on more downside to come. But let’s get ahead of ourselves. I prefer to watch for clearer indication. Bear Call is better strategy for this index.

The Nasdaq remains in bullish mode, though it broke the chart pattern support line. Also, the volume did not suggest that it was clear break. To avoid a false breakout, we should see the break of RSI 40 line to confirm.

STOCKS TO WATCH:
CME for trampoline and gap closing
BBY for bearish breakout

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