Editor's Note:

The market sell-off continues. A non-stop six-week decline is a bit unusual but seeing a market correction in summer is not. The S&P 500 is off more than -6.5% and looks like it is headed for the 200-dma near 1,250. A drop to 1,250 would push the correction to -8%. If the S&P 500 breaks down under 1,250 then it's probably headed for 1,200, which would be almost -12%. A drop to 1,200 would also be a 50% retracement of the S&P 500's rally off the lows from last August.

Eventually stocks will see another oversold bounce and it might last more than a day or two but the important thing to note is that the trend is down and traders are likely to sell into strength. We could try and buy dips at major support levels (like 1,250 or the 200-dma) or we could wait until we see how the market reacts to July's Q2 earnings season. Whatever strategy we choose the place to buy stocks (or long-term call options) is not at current levels.

If we do happen to see a bullish entry point we'll need to trade defensively and keep our position size small to limit our risk. I am not adding any new trades tonight.