06.16.2011 -- Jack in the box..

This market is like a jack in the box right now. The handle is turning and the music is playing, and any minute you know Jack is gonna burst out of the hole and scare the ish out of you, and you know it's close, it just hasn't happened yet.

The VIX is really perking up here. The selling is becoming more impulsive and we are getting things like back to back reversals. The pent up emotions of the market are starting to return. The lost element of fear is creeping back in. The "Fed has our back" security blanket is fading. Buy the dip is no longer always working.

As I mentioned yesterday, the XLF and Russel are looking like the strongest areas and the areas most likely to lead a bounce. They looked strong today. The XLF clocked a half a percent gain and the Russel, which usually follows the NASDAQ more than the S&P, had a quarter precent gain while the NAS slid almost 8 points. So they both outperformed today.

For the market to continue to go down with any conviction, the XLF and Russel MUST put in a new low.

I have some targets on the S&P for you tomorrow. 1275 is critical for a breakout north, with some more resistance up around 1285. For the downside, the market need only take out 1256 (the 200dma). Considering it's triple or quadruple witching for options tomorrow, I'm not sure either of those levels will be heavily tested tomorrow, but I have seen stranger things.

Here are the S&P charts; (I didn't do Russel or XLF charts as nothing really changed with them from yesterday)

On the daily, the Stochs and RSI are almost tripping a buy signal, the MACD is not quite there yet; Key levels are shown..

On the hourly, we are on a buy but have burned off a decent amount of oversold, almost to a neutral signal. This shows the 1285 resistance more clearly;

So long story short... I would short a close that takes out 1256 and buy a close that takes out 1286.

The next move is likely to be violent.

I personally think we have one more big downdraft left in this selloff.

GL

CJ