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In this particular case, I have maintained for a number of weeks that the markets were in the earlier stages of the Investor Cycle, meaning that the Aug 24th lows would eventually be exceeded. That would involve a pattern where the markets recovered back towards the prior breakdown point near 2,044, and then continue lower. Two days of sharp declines are not confirmation, but that was an ugly end to the week and the odds of that expected pattern playing out, i.e. a continuation lower, have greatly increased.
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Last week, Crude put in one of the best single week rallies on record. Such a move was obviously not the result of bargain hunters or demand buying; it was driven purely by overly-leveraged speculators covering Short positions as the market turned higher. Once such moves get going, they often take longer than six sessions to resolve, so I expect that Crude will continue higher in the coming week as traders continue to cover their Shorts.
In summary, so far the declines have been of the ICL variety. But the fact that the market has entered into a correction with such high volatility and so early in the Investor Cycle points to a deeper market correction. But it won’t be a straight line lower, and with markets extended to the downside, we should have a period of stability (maybe 2 weeks higher) that should lead to a short-term top. Only then, after the bulls have begun to feel comfortable that the “buy the dip” narrative will hold true again, will the market be in a position to continue its decline.