Last night I was hoping we would gap down near 90, get tested and hold so that we could have a strong day. I did get the gap I wanted and was trading lightly in premarket with the idea of buying into the gap. Unfortunately, the retail sales data at 8:30am was worse than expected and the SPYs traded cleanly through the 90 level without much of a fight. All bets were off for my longs.

Part of the selling right on the open was due to those institutional players who got caught on the wrong side after defending the 90 support level. This important level was retested around 10:30am and held. This is very significant. This is the first time we have gapped down below an important support level and we weren’t able to lift it intraday. This is a huge victory for the bears who have been riding the pain train for a while.

I am expecting some follow through to the downside tomorrow given the weak close in the market, but only if we gap up a little or open flat. Ideally I would like to see the market run a bit and fail at 89.50 so I can play the short side aggressively with a target of 88-88.50. If we ultimately get pretty killed I will be keeping an eye out for the 87 level in the SPYs as my ultimate load up price to buy on this pullback. Closes below 87 will be very bearish for this healthy market.

However, If we get a gap down near 87.50-88 area then I will not be looking to short aggressively. That would shift the risk:reward intraday toward the long side. In fact, I will be looking to buy that gap down and play aggressively on the long side if I spot unusual buy orders. Some of the stocks I will be watching and prices of interest are: WFC near 23, BBT around 20.80, MS near 24.50, and GS around 124.50.

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