Modest Rally Expected Here - Continuation Of Downside Is Expected After That

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With the little rally yesterday and today, the hourly stochastics has cycled back up to the overbought area at a lower high than the previous signal.  Additionally yesterday's low clipped the 9-1-15 low before reversing.  From a chart standpoint this is very common in my experience.  From my perspective, if you are short, the safe stop level is above the high of 9-17-15.  That high should not be exceeded at this point from my assessment of where we are in the post "crash" pattern.  If Thursday's low is broken to the downside, I believe the stop on a short position could be moved down to above whatever intervening high occurs.

Given the most comparable market environments in the past 20 years, it would be expected for a brief 1-2 day rally (maybe 3-4 days) after the break of that minor low.  Then the expected outcome would be for a very sharp break down to retest (and probably break) the August low.

This being said, the daily stochastics is now nearly oversold, and so from an indicator standpoint, there are some cross current that may indicate a few days or more of "sideways" or upwards action before a more ideal situation for a sharp downward move to continue.   In all the instances highlighted in that comparison post, a rally occurred very soon after the break of the "crash" low.  I don't really expect it to be different here.

If the bull market has topped, and a larger and faster decline than any in the bull market were to occur, price of SPY would have to decline to about 166 by the week ending 10-23-15.  That would make the decline larger than the 2011 decline.  Obviously that seems unlikely at this point and I don't expect that.

The next important time frame for an inflection point I believe to be in the 2nd or 3rd week of October, possibly near the options expiration on the 16th.

Pete