Some thoughts

This is how greed ends.... to quote stupidity caused by greed - "DJ 30k without correction positive thinking".
I repeated two weeks in a row "what goes vertically higher comes the same way lower", look at March 2000 "all the January gains will be wiped out in February".... it is never different it is always the same, because the reason is human greed and stupidity and it does not matter if it is about tulips,bitcoins,volatility or what ever.
First the Bitcoin guys feeling the pain and still buying the dips and now the short volatility traders seeing the trade exploding in their face. The unthinkable happened - VIX doubled in one day, XIV down more than 80% and according the prospect should be liquidated. Volatility suppressed unnaturally around 10 or below for a year and now short volatility traders receive their margin call. Bitcoin looks like a walk in the park:) if you ask me.

So the short volatility trade imploded taking the market lower with it. I have read a few times that this trade is very dangerous, here is one podcats (from minute 12)..... I can not say if there is more positions to be unwinded or not, I am just a chart guy. According to the guy from the podcast ETFs/ETNs like XIV are the least problem.


I hope you did not let greed dictate your actions and took profits. It was a great run since November, but it was time to take your money off the table and go short. What now? The bulls must pray that FED will save the market:), but FED said it will take the punch bowl away and it cares about the bond market where the skyrocketing yields are problem, the stock market is less interesting. It could start QE again when they said they will do the opposite or.... move money out of stocks into bonds. This panic comes right on time, what happened with yields yesterday:) I think they will save the day just to let the stock market drop later hoping it will decline in orderly manner.

So what about the charts, what we know - the move looks like an impulse, usually the panic low is not the low, based on history this moves has the DNA of a sharp correction in a bull market caused by excessive greed, usually a bear market starts slowly and not with a crash.
What we do not know - two options the bull market is over or this is wave IV. How should the price action look like:
- the bull market is over - we have an impulse so this is wave 1, but extreme fear and most of the fuel to the downside is burnt. I would expect wave 2 deep retracement lasting for months so that traders forget the pain and talk about DJ 30k again. Example - August 2015 panic sell off for three days followed by wave B for 3-4 months.
- this is wave IV - this impulse lower is wave A, wave B should follow. It should move quickly higher and retrace at least 50% of the sell off. Examples March 2000 or February 2007 - a-b-c zig-zag with one panic wave and the other one shorter 61,8% Fibo. The current wave is obviously the panic move so after wave B expect wave C=0,681xA.

How will the chart look like in both cases(of course the wave lower could have a few more percent lower) - green the bull market is not over, red the bearish case.
I still think such price action fits better as wave IV, but lets see if we have A-B-C test of MA200 or something else.

Weekly preview

Short term view - one more leg lower to MA50 and short term bottom.
Intermediate term view - the move lower should last for a few weeks. The pattern develops so far like wave IV from the Feb.2016 low.

The indexes turned lower with scary sell off on Friday... such development is not a big surprise. As I wrote two weeks ago what goes vertically higher comes the same way lower. Just look what happened the next month after the exhaustion monthly bar in March 2000 - all gains were retraced. If my count is right all the January gains will be wiped out in February. Nothing new under the sun:) the same old story greed and fear.

It is just one week, but time and pattern are pointing at wave IV from Feb.2016 at the moment. The current pattern lower develops as an impulse(more to the downside), 20 week cycle low is expected late February/early March(a few more weeks lower), market breadth turned lower, but not even close to oversold (a few weeks before we see an intermediate term low).


TECHNICAL PICTURE and ELLIOTT WAVES
Short term - gap below the first support level and sell off to the second support level/the trend line/MA200. We still need to see wave 4 and 5 for confirmation, but no signs of a bottom - price and indicators are just moving lower. So with high probability we will see the missing waves next week.

Intermediate term - currently it develops like impulse lower to MA50. This means bounce higher from MA50 for wave B and one more leg lower for a finished zig-zag wave IV around 0,236 Fibo retracement and the tend line just on time for a 20 week cycle low. RSI is breaking a lot of trend lines which means this is not some lower degree wave the only one which fits is wave IV.
P.S. The Fibo measurements for the impulse from Feb.2016 are way too perfect... scary:) when it looks perfect something goes wrong.

Long term - it looks the expected correction is running. RSI is about to test the trend line and this should be a wave of higher degree and this is wave 4.
I still expect one more leg higher before a major top. Indexes like DAX and EEM still need one more wave higher and market breadth does not suggest that this is the final top.

MARKET BREADTH INDICATORS
Market Breadth Indicators - are pointing lower, sell signals across the board.... looking at the indicators I would say we need a few weeks before the next intermediate term low.
McClellan Oscillator - reached oversold levels bounce is expected soon.
McClellan Summation Index - sell signal.
Weekly Stochastic of the Summation Index - sell signal.
Bullish Percentage - turned lower with sell signal, but well above 70.
Percent of Stocks above MA50 - sell signal, pointing lower and below 75.
Fear Indicator VIX - break out of the wedge.
Advance-Decline Issues - lower for weeks, but still not oversold.


HURST CYCLES
Day 23 of the 40 day cycle. It turned lower, the price broke below the cycle trend line and MA10.

Week 11 of the 20 week cycle. Given the sell off on Friday it should be heading lower already.