The Correction Has Started: Have You Taken Shelter?

I have been preaching for the last several weeks that a market correction was in order, but first several things had to happen. First was the lack of follow through on the Russell 2000 breakout. The large caps faltered and the small caps finally threw in the towel yesterday by gaping down and never recovering the previous highs. We also know that the institutional investors have been selling as of late, placing another bolder in the markets road.

Today we have another gap down for the cash crowd which could be the start of a simple correction or something more ominous. This market has been extremely difficult to guess at what is going to happen next, at least in the traders short term vision. When a market is experiencing low volume, AKA no participation, it is easily manipulated by the algo traders and DaBoyz on the midnight shift making it impossible to follow through on trading thoughts.

The volume has to increase to truly see the trend at hand and trading can also commence. There has been a slight increase over this past week, but it appears it is uninformed investors jumping in and testing the waters. Watch for increasing volume as I just can’t imagine the market starting to fall without increasing volume. But on that note we have to wait until the picture become clearer.

What will happen is the support for the 500 is at ~1400 and the premarket has already taken that out at 1387 this morning. The next support appears to be at 1375.02 and that will most likely hold for today unless we see some sort of a Black Swan event.

The market opened down as expected with the DOW reaching 13056 and the 500 seeking 1393. GLD is at 158.31, SLV is at 30.57, SSO is at 57.07, SPY is at 139.20, WTI oil is at 104.94 and Brent is at 122.24.

The first 20 minute volume is high, but still on the low side as adjusted for the last 2 months activity. The markets did move down, but they are currently taking a breath with more than normal dip buying going on. The DOW got within 60 points to its next support and the 500 is lagging, but only has 18 points to go and that is where I expect the action to begin. I also expected some buying of the dip today which is occuring, but will the bears take control, well we will have to see.

Markets reacted favorably to the financial reporting by melting up (slightly) in the pre-market action and then eased down again below the premarket starting point for the morning to where they are now.

@dailyfx: For those just looking at markets for first time today, risk sentiment has taken a hit on weaker PMIs out of China and the Eurozone.

U.S. Continuing claims (mar 10) come in at 3352k vs. 3380k projected, previously revised to 3361k from 3343k.

U.S. Initial jobless claims (mar 17) come in at 348k vs. 350k estimated, previously revised to 353k from 351k.

Written by Gary