S&P continues to melt - but approaching bounce areas...tread cautiously.

I know in my last post I said I would give you a few ideas from the short side but given the market meltdown today it seems more important to take a look at the broad market. Although there are many setups better than others, in this environment nearly any idea from the short side will work.

Below are charts of the S&P futures as well as small caps IWM after todays close. As you can see from todays nasty candle, both fell strongly and closed at their lows. Typically, on days like this no one should be playing "catch the falling knife" because it rarely works. Instead, wait for things to stabilize - somewhat like GDX did over the past few days - where some bottoming action takes place. It may be at current levels near 1300 minis and $75 IWM but it may also be slightly higher or lower where there is a tradable bounce.

Interestingly, Fibonacci retracement levels are lining up nicely. Although 1300 should find big support in the minis 1284 is 38% Fib retracement from the October lows and is more significant. Additionally, the 200day moving average near 1267 will be very (did I say VERY?) big if it gets there. As for IWM, that is already sitting on its 30% Fib retracement which is very significant because it also coincides with the 200day moving average. I suspect this area will get a lot of play but, because small caps often lead on the way up as well as the way down, it could be the area surrounding its 50% Fib retracement that becomes more important.

Pick your stocks...pick your ETF's...high beta stocks such as AAPL, CRM, GOOG, whatever...pick your poison - just sell/short/liquidate on bounces until it doesn't work any more! This strategy has been working for the past number of weeks and until a bottom is in place, will continue to work.