Friday ended the S&P 500's worst weekly decline since the week of August 17, closing with 92% of total volume occurring on the down side. At the same time, the advance-decline ratio closed at breadth extreme of 7.3-to-1 negative (7.3 stocks closing down for every stock closing up on the day). As if these aren't demonstrative enough, the McClellan Oscillator reached -294 at Monday's close, the most extreme oversold condition in the past year, except the August 24 low of -331.
Our decision support engine (DSE) allowed us to warn the day prior to that day of market infamy that going home short on Friday, August 21st was not a good idea. Further, that doing so would likely result in being trapped at a potentially sharp down opening, without the ability to take advantage of much further decline. As you can see in this article, published about 10 minutes before the open on August 24 (just before the Dow fell 1,089 points to its low of the day), the DSE was amazingly accurate in many of its forecasts.
This chart shows the final expectation of the forecast from the Jaws of Death pattern that we observed only last week. It's the intra-day (478 minute) bar chart of the Emini futures (March continuation contract), since the November 3 high. The pattern since that peak is highlighted in the yellow box, a corrective pattern. Here, the down-up-down progression likely matured at yesterday's low, allowing the completion of wave red 4, or at least the lowest price extreme within wave red 4. If a triangle is still in progress, the blue arrows to the next lower high, labeled (D), followed by the next higher low, labeled (E), will complete wave red 4. Then, wave red 5 will stretch into the 2145 +/-30 zone in the coming 15 +/-5 days. As you can see, red 5 has several measurements: 2,115, 2,145, 2,165, and 2,185.
The purple, vertical column is the FOMC interest rate hike window, which is expected after the meeting ends at 2 p.m. Eastern time today. There was massive Plunge Protection Team (PPT) buying around mid-day Monday, which allowed the stock indices to rally into the close, trapping the bears, yet again, at the edge of the cliff, as they prepared to pounce on the selling tsunami that could have occurred (if not for the stealthy buy programs). Once the shorts got nervous, their covering fed on itself, and a mini short squeeze was in play, which is likely to get more dynamic after the FOMC announcement Wednesday.