Got to follow the charts!

Today we saw some selling pressure on all indexes across all market segments, notably the financials. As you know, I am in the camp that believes a correction is due. I feel stock prices are ahead of the fundamentals (S&P trading at 18.3x earnings with revenues shrinking), sentiment is at an all time high (88% bullish amongst retail investors), and the technicals look very bearish when viewed from almost all time frames. I have already provided a 2 year daily chart demonstrating the major retracement levels of the S&P . I now offer a look at today's action. I do this because, surprisingly, there are some very good traders out there who still think that there is more room to run on the upside short term - meaning the next couple of sessions. I don't see it, and I would love to get more explanation on the view.

For now, here is my look at todays action. Drag a fib across the closing high and the low for today. Note the 38% retracement level. Add a fib fan spanning from the closing high to the last local low for the day. Note the three fan blades and how they track with the retracing highs. What happened when the third blade, first fib retracement, and price converged at the end of the day? Breakdown.

I was amazed to see comments from traders suggesting that market manipulators are simply baiting shorts here. There is no such conspiracy. The market is simply a real time reflection of the conflict between supply and demand - driven by greed and fear. It is our job as traders to stay objective and profit from the mistakes of the herd.

I think the market will now trend lower with some volatility from here on out. Look for tests of 960, 940, and 920 on the S&P. If we hold, meaning we don't see a major leg down, we will remain range bound at best for the next quarter. The administration has supplied sufficient spin to ensure that much of a grace period - but not much more...

Happy trading.