Faltering Friday – Rally Retraces from the Top

It's not much in the grand scheme of things.

As we noted and predicted on Tuesday, the Russell Index is undergoing a long-overdue correction to the 1,640 line from 1,705 and, as noted on Tuesday – it's not really bearish unless we fail to hold 1,640.  So far, the other indexes have not really followed suit – yesterday's 200-point drop in the Dow was nothing – not even 1% of it's 26,825 start to the day.  BUT (and it's a big but), if the Russell does fall into a proper correction and fails to hold the 1,640 line – then we can look for all the indexes to begin correction and THEN things can get very interesting.

We calculated the retrace zones for the other indexes in yesterday's Live Member Chat Room and they are:

Still looking for 1,678 (weak bounce) on /RTY going back to Tuesday's notes and below 1,670 is more likely that we're legging down to 1,640 (strong retrace from 1,700) and then we can expect the other indexes to AT LEAST weak retrace from their highs.

That's off the year runs so, for the Dow, we're looking at 25,000 to 27,000 which is 2,000 points so 400-point retraces are 26,600 (weak) and 26,200 (strong):

/ES is essentially the same /10 so 2,700 to 2,900 means 2,860 and 2,820 and, since /ES is still at 2,923, it makes a great short below the 2,920 line with tight stops above.

/NQ 6,400 to 7,600 is 1,200 so 240-point retraces and Nas loves 25s so call it 250 to 7,350 and 7,100.

We hit 26,600 on /YM yesterday and our /ES shorts paid $1,650 per contract at 2,890 but that's still not a proper correction on the S&P and we can re-short it on a move back below 2,900 with very tight stops over
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