Editor's Note:

The stock market has seen a pretty significant drop in the last two weeks. The major indices have broken down through major levels of support. Yet in spite of the decline the volatility index, while elevated, is not as high as many market analysts think it should be. This is a signal that investors haven't capitulated so the sell-off may not be over.

On a short-term basis the stock market is oversold and due for a bounce. However, the market's trend is down and with the prospect of more weakness ahead of us I am not adding any new trades tonight but we did add three new candidates to our watch list.

I am almost tempted to buy calls on the S&P 500 ETF (SPY) should we see the S&P 500 index trade near 1100 again. An entry near 1100 with a stop under 1074 might work as a trade.

-James