How low will this correction go?

I commented yesterday that the NTSM analysis can’t tell how low a correction may go.  That is true at the beginning of a correction, but at this point we can make a guess.  I must caution that this really is speculative – volumes have not been acting normally.  For example, as the S&P accelerated toward the 22 Feb 1343 top, volumes were declining.  That's odd; but let’s speculate anyway.

So far volumes have been declining during this downturn.  As long as that continues, the correction should be relatively shallow.  Optimistically, we could test S&P 500 1257 and then move up.  We are now 8% above the 200-day moving average so a slightly more negative scenario has us falling another 8% from here (down to 1210).  If volumes pick up during any further decline, all bets are off.

There is always some chance that this is THE TOP and we'll see significant declines from here.  There are many non-technical issues of concern such as: End of QE2; high gas prices; Budget Deficit and inflation fears...domestic and foreign.  The problem with these issues is that we have no crystal ball and we can’t know how the Market will interpret them.  The Market always climbs a “wall-of-worry”.  When will the worry turn to panic?   We can’t know.

 NTMS switched to SELL on 22 February.  Since then, NTMS analysis has been Sell or Hold (it remained Hold today); therefore, I am still conservatively positioned with only 30% invested in stocks.  I am 2xshort with 50% of my trading portfolio using QID and the Inverse Rydex 2xNazdaq fund.