Today saw strong selling across the board, which hit most sectors except the energy and commodity sectors. The selling was steady all day, indicating distribution of stock by the funds and some technical damage was done to the charts. But the bulls could pull another rabbit out of the hat if they rally the market starting in the morning.

Wednesday's Market Stats

This week's decline has been strong but when you look at the past three weeks you can see we're just playing follow the bouncing ball. I've highlighted a couple of the indexes we typically follow to show the recent volatility. Look at NDX as an example -- down nearly 144 points for the week ending March 13th, followed by up nearly 144 points last week and now down 129 points so far this week. If you don't like the market's direction, just wait a week.

Week's Market Stats

This morning's economic reports showed a continuation of the deterioration of our economy but that didn't matter to the equity futures market, which actually rallied on the pre-market news and created a little gap up for the cash market at the opening bell. But then the sellers hit and they were merciless to the bulls. There were two brief periods of consolidation, one in the morning and the other in the afternoon, but the selling was steady and the volume was strong. It looked like a clear distribution day and the selling did some technical damage to the charts. The bulls have an opportunity to get themselves back on their feet but they'll need to get started immediately Thursday morning.

The Durable Goods Orders report this morning showed a decline of -1.4% (-0.4% excluding transportation), which was worse than the +0.4% (+0.3%) expected and much worse than January's upwardly revised +2.8% (0.0%). Just about every report we've seen for the past month or two has shown us a steady decline in economic output and even though the market has believed this is a good thing, because it keeps the Fed accommodative by not raising rates by a measly 0.125%. How long the Fed can jawbone the market higher (or at least not to sell off) is the big question but perhaps today started to answer that question.

The other report this morning was Crude Inventories and it showed an increase of 8.17M barrels in the past week, which was less than the 9.62M barrels added the previous week. Whether or not that had anything to do with the rally in crude, which was up +3%, the energy sector and commodities in general were some of the few things in the green today.

Chicago's Fed President Charles Evans gave a speech early this morning in London and he continued the FOMC's dovish stance. He believes the costs of raising rates too soon outweigh the risks of raising them too late and therefore believes the Fed needs to wait until 2016 before thinking about raising rates. That was a bullish message for the market but it was ignored. Are we starting to see cracks in the foundation with the selling of good news? Perhaps it's the market starting to get worried that we have a Fed that is trapped -- they've now painted themselves into a corner and they're going to get paint on their feet and ruin all the "good" work they've done no matter which way they go. They're trapped and it's only a matter of time before the majority in the market start to understand that.

There wasn't much else in the news today so I'll jump into a review of the charts, starting off with the SPX weekly chart. It shows price has more or less traded sideways since the strong rally off the October 2014 low. The first time it climbed above 2065 was on November 21, 2014 and that level has been crossed multiple times since then, including today's decline. SPX has worked its way marginally higher over the past four months but it hasn't been able to make much progress. There is a possible rising wedge off the October low, the bottom of which is the uptrend line from October- February, currently near 2068. A drop below the March 11th low near 2040 would indicate the top is probably already in place but in the meantime there is still the potential for another rally leg into April with an upside target at 2140-2150.

S&P 500, SPX, Weekly chart

SPX dropped below its 50-dma, near 2068 (today's low was 2061), and price-level support near 2065. It stopped on its uptrend line from October-February, near 2061, so any continued selling Thursday would mean a break of multiple levels of support. A 1-day minor break today is no big deal but a close below 2060 tomorrow would be a bigger deal and something the bulls would have to be worried about. The next level of support is the 200-dma, near 2010, but until that happens we still need to watch for the possibility of another rally leg to complete its large rising wedge pattern from last October. These patterns are full of choppy price action with lots of whipsaws, which is certainly something we've seen. The tops of the rising wedge patterns are near 2140 (the trend line along the highs from December-February) and 2150 (the trend line along the highs from July-December, 2014), hence the upside target zone for a final rally leg. But this requires the bulls to step back in tomorrow and flush the bears back out again.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2114
- bearish below 2060

The 60-min chart below shows the break of the uptrend line from October-February, which was also broken marginally at the March 11-13 lows. Another opportunity for the dipsters here but they can't waste any time doing it. If today's decline, especially the push lower into the close, was designed to flush some weak longs and suck in shorts, to help provide buying power for the next rally, it should start with a gap up tomorrow morning. That would create a mad scramble by both sides to do some buying, something the HFTs love to trade. As noted on the chart, two equal legs up for the rally off the March 11th low points to 2136.39, which crosses the trend line across the highs from December-February on April 2nd. This pattern supports the idea that we could see an effort to make a new high by end-of-month/quarter. But the bearish pattern suggests the selloff from last Friday is impulsive, which means a change in trend to the downside. That calls for a bounce correction but one that should be shorted for what would be an even stronger decline in a 3rd of a 3rd wave down. First we need to see a bounce and then second we'll need to see if it sets up a nice 3-wave bounce with at least a 50% retracement. That would be the opportunity to try the short side, keeping in mind the upside potential.

S&P 500, SPX, 60-min chart

One of the key points to make about the rally off the mid-March low is that it's different from previous rallies. Traders have come to expect v-bottom reversals and then get long and hang on. But instead of a constant bid under the market since that low, as we saw off previous lows, we've had some significant pullbacks along the way, especially the past two days. From March 12th to the high on Monday we had an alternating sequence of red and white candles, which is different from the rallies off the October, December and February lows. This is a change in character to the market that deserves attention. And now with the stronger selloff since Monday, which follows a lower high against the March 2nd high, there is the potential for a more significant decline to follow. The key level to the downside for the DOW is 17620 (the March 12th low) but for now, holding above the uptrend line from October-February, near 17677 tomorrow morning, keeps the potential alive for another rally leg into April.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,100
- bearish below 17,620

Hurting the tech indexes today were the SOX, down -4.6%, and the biotechs, which have been getting clobbered this week. BTK is down nearly 9% this week and down -4.3% just today. The high-flying index has seen a lot of profit taking this week, which is another example of risk-off. But it should be noted that the BTK index (and the IBB ETF) left no bearish divergence on either their weekly or daily charts at last Friday's highs. That could mean there will be at least a retest of those highs before potentially putting in a longer-term high. For now it's just a warning to bears.

As for the tech indexes, today's decline for NDX and the Nasdaq is just pure ugly if you're a bull. That's a nasty-looking red candle and the series of red candles following Friday's gap up and smallish doji candle last Friday makes it look like an exhaustion gap up on Friday. And the significant bearish divergence at last Friday's high, which leaves a double top in place, certainly favors the bears. But all is not lost for the bulls yet, especially with the 50-dma, near 4322, not yet tested. Its uptrend line from October-February is currently a little lower, near 4310, so a stronger signal of a breakdown would be a drop below 4310, especially on a closing basis. For now the uptrend is still intact so bears need to respect that, but clearly the bulls need to step back in if they want to keep control of the tape.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4479
- bearish below 4310

Talk about an ugly red candle! The RUT saw some serious profit taking today and experienced the strongest down day since last October's low. That's what you call long covering after so many kept chasing this index higher but pulling their stops up as they went. The index gave back everything it had gained since March 12th and dropped back below its March 2nd high at 1243. The RUT was one of only a few indexes that was able to climb above its March 2nd high but it has now quickly joined the others in giving up the bulk of the rally off the March lows. But as with the others, there is still a chance for the bulls to step back in and pull a reversal on the bulls. As long as it stays above its uptrend line from February 2nd, currently nearing 1215 and its 50-dma at the same level, there remains the potential for another rally leg to another new high. The upside target, if a new rally leg gets going, is near 1288 where it would again back-test its broken uptrend line from March 2009 - October 2011, as well as the top of its up-channel from January, with both lines crossing that projection on April 2nd (the same date projection mentioned for the SPX 60-min chart).

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1266
- bearish below 1206

Treasury bonds also sold off some today so money wasn't rotating out of stocks into bonds. Today's selloff in the stock market looks to have been just profit taking (at least for now) and moving into cash. We'll have to see if that pattern changes in the next few days. Looking at the longer-term chart of the 30-year yield (TYX), the bounce off the January 30th low followed by the decline from March 6th leaves us with a 3-wave bounce and that suggests just a correction to the longer-term decline and lower lows to come. We could see a higher corrective bounce but so far I'm not seeing enough evidence to suggest a longer-term low is in place. Yesterday TYX dropped back below 2.5% yesterday, a price-level S/R line, and today it bounced back up to it. If that holds as resistance we'll likely see rates head lower, which would keep my prediction of sub-2% intact before seeing a longer-term bottom.

30-year Yield, TYX, Weekly chart

Speaking of bonds, I was a little surprised to see HYG (High Yield Corp bond fund, otherwise known as junk bonds) had not sold off that much (-0.26%). If today's selling in the stock market was a risk-off kind of move I would have thought investors would be reducing risk in this fund. It's worth watching over the next few days since it could be another piece of the puzzle telling us today's stock market selloff might not have been as bearish as it first appears.

If we look to the VIX for some clues, it was warning us that a reversal could be coming. The VIX had dropped down to its uptrend line from July-December 2014 last Friday and this past Monday and not surprisingly it bounced off that support line. The higher highs since last July, while SPX continued to make new price highs, have been indicating a bearish non-confirmation that's still waiting for resolution. The VIX is now back up near its 200-dma, at 14.94 (today's high was 14.75) so it could be ready for a pullback (while the stock market bounces). But VIX could be ready for a stronger "rally" off support.

Volatility Index, VIX, Daily chart

Another warning came from the VIX futures, VXX, which had poked through the bottom of its Bollinger Band this week and today's reversal back inside the band is generally a good "buy" signal here. As can be seen with the matching red circles on the SPX line (blue), these reversals off the Bollinger Band pierce have led to strong declines in the recent past (off the September and December 2014 highs). We'll soon find out if the pattern will repeat.

VXX vs. SPX, Daily chart

The banks had a bad day today as well and BKX dropped nearly -1.7%. The weekly chart below shows the red candle for this week that has already retraced the previous 5 weeks of trading. Falling away from the uptrend line from October 2013 - May 2014 (gray line) and its broken uptrend line from March 2009 - October 2011 clearly looks bearish. The back-test of the broken uptrend line from 2009, followed by this week's kiss goodbye is a classic sell signal and it tells me to look for bounces to short. I'll continue to respect the upside potential for a run up to the top of its expanding triangle, which is currently near 75.40, but I consider that a lower-odds probability (and we play a game of probabilities). Look for support at its 50-week MA, at 71.01, which is close to its 50-day MA AT 71.09. Slightly higher is its 200-dma at71.36 and only 13 cents below today's low.

KBW Bank index, BKX, Weekly chart

The TRAN started to lead to the downside on Monday and was a warning sign for the bulls to pay attention to. Last Friday's high was yet another lower high in a string of them since its November 28th high. While the DOW kept pushing higher the TRAN was not confirming the new highs and that has been leaving a Dow Theory bearish non-confirmation. But its price remains inside a potentially bullish descending triangle (flat bottom, declining tops) and this pattern follows the strong rally from October into November. It's a bullish continuation pattern and until it is negated with a breakdown, which means below 8580 (and stay below), we have to respect the potential for a rally out of this pattern. A rally above last Friday's high at 9176 is needed to prove the bullish pattern is correct but a drop below 8580 would also be a break below its 200-dma, currently near 8647, and its uptrend line from November 2012 - October 2014, also now near 8580. That's a must-defend level for the bulls.

Transportation Index, TRAN, Daily chart

For the U.S. dollar I was looking for the rally to finish just north of 99 but it instead rallied up to a high of a high around 99.50 but it made a little higher with a brief throw-over above the top of a steep parallel up-channel for the 3rd wave. I’m now expecting a multi-month 4th wave consolidation, which should stay above the top of a shallow parallel up-channel from 2008-2011, which is currently near 93.50. Below that level would have me wondering if something more bearish is happening for the dollar but if it does consolidate in a choppy pattern we could see commodities and metals forced to trade on their own for a while longer.

U.S. Dollar contract, DX, Weekly chart

Gold's decline from January 22nd looks like an impulsive 5-wave move and that keeps the dominant downtrend intact. It also means a bounce off last week's low could make it a little higher before heading back down, perhaps up to its 50-dma, near 1220, or its 200-dma, near 1239, or its 50-week MA near 1246. Currently it's battling its downtrend line from October 2012 - July 2014, which was tested with today's high at 1199.30. This downtrend line was broken in mid-January, getting gold bulls all excited, but it turned out to be a head-fake break after dropping back below the line in mid-February. For the time being I continue to view bounces in gold as shorting opportunities.

Gold continuous contract, GC, Weekly chart

When it looked like oil was going to find support last week at a Fib target zone near 42, especially with the bullish divergence against the January lows, I thought it was a good setup for a strong rally that will see oil challenge price-level S/R near 58.50. So far there's no change to that expectation although it will first need to get through resistance at its downtrend line from September-November 2014, currently near 50.10. We might see a pullback from that level before continuing higher.

Oil continuous contract, CL, Daily chart

It will be a quiet day for economic reports tomorrow so the market will be on its own, responding only to global news. Friday's GDP 3rd estimate and Michigan Sentiment could move the market but at the moment it's not looking like any big changes are expected for either one.

Economic reports and Summary

Today's selloff was clearly bearish and there's no good way to sugar coat it for the bulls. It's an impulsive decline off Monday's high and that's a strong signal of a trend change back to the downside. The decline from Monday can be counted as a completed 5-wave move and that sets up a bounce correction for Thursday. If there's no bounce and important support lines break then that's when we'll be hearing the fat lady singing the blues for the bulls. But for now the bulls have a chance to hold support if they come back in and do some buying in the morning. The higher-odds probability is that a bounce into Friday/Monday, assuming we'll get one, will set up a stronger decline to follow, especially with the bearish wave count setting up for a very strong 3rd of a 3rd wave down.

But before getting too bearish here, I've seen plenty of sharp pullbacks that looked like the start of something bigger to the downside that suddenly gets reversed and starts the next short-covering rally. That remains a possibility with important uptrend lines holding. Now we wait to see if they'll in fact hold.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying