Welcome back from the weekend, everyone, although I wish we could have started the new trading week out on better terms. While I'm not so sure U.S. stocks were poised to begin the new week on a bullish foot anyway, in the shadow of an 8.5% tumble from Chinese stocks, domestic stocks didn't stand a chance on Monday. As for where we're headed to from here - now that new damage was inflicted today - the bearish trend cleared some key hurdles. In other ways though, the market has hit some key floors that could serve as the basis for a quick bounce. The question is, how long will that bounce realistically last? We'll dissect it all below. The first thing I want to talk about today is the 800 pound gorilla in the room... China. And The Bears Still Aren't Done With China I don't want to dwell too much on it, but since a bunch of you may have a stake in it I do want to touch on today's renewed meltdown of China's stock market. First and foremost, yeah, I think it's going to go lower before it goes higher again, as the country's new and veteran investors seek to unwind leveraged (margin) positions while simultaneously digesting the reality that their economy still doesn't quite support their market's frothy valuation. Just for a little perspective, the Shanghai Stock Exchange's stocks - their equivalent to the NYSE - are now valued at an average P/E of 18.3. Our S&P 500 Index is still priced higher, at just under 19.0 as of today, but for the same reason I've been saying the S&P 500 is due for a valuation-based correction, I'll argue the Shanghai Composite is equally due for a pullback. It's not just a matter of valuation though. It's also a matter of growth opportunities, or lack thereof. While China's current GDP growth rate 7.0% is enviable by most any standard, it's a growth rate that's been progressively shrinking over time, and is expected to keep shrinking at least through next year (and probably beyond). In fact, when you factor in the advantageous effect of currency fluctuation and inflation, China's most recently reported GDP growth rate is less than 6.0%. It's still huge to be sure, but the reason so many investors were so willing to blindly take chances on Chinese stocks over the past year was the assumption that China's economic growth would start to accelerate again, spurred by an assuring Chinese government. That growth just hasn't materialized, and probably won't. And then there's another matter nobody else seems to be talking about - the 1400 companies that suspended trading of their stocks in China to escape the plunge. I honestly don't know how many of these names are trading again; I'd guess most of them by now. But, investors aren't dumb. If Chinese investors thought the other remaining 1400 or so equities are only worth about 30% of their mid-June price, then it's only matter of time before they'll re-price those previously-halted stocks accordingly. And then there's the lingering leverage - margin investing - which is actually far greater than it seems be on the surface. When I warned you guys and gals about China way back on April 10th, I noted that margin lending levels there had reached record proportions that would make the United States' typical margin lending levels look like child's play. It went even higher than that through mid-June. Those official margin loans were whittled down to just a third of their mid-June levels in the wake of the 32% tumble from the market. But, the unofficial margin loans - conventional loans - which are effectively margin loans are still very much on the table and still need to be covered one way or another. It's just a guess from Bank of America Merrill/Lynch about China's market, but the company's analysts think that 13% of its A-share market cap is still owned on "margin" of some sort. That's about $1.2 trillion worth in terms of U.S. dollars. A margin-proportion reading for the U.S. market that would be considered abnormally high is less than half of that 13%. Whatever the case, it's got to be accounted for sometime, somehow. My fear is more selling - which would lock in losses in addition to pushing the market lower - is the only near-term solution. My point is, when the only thing it takes to send a market down 8.5% in one session is a mere rumor that the government is taking the punch bowl away to, then there's something very broken about that market. It may be fundamental, or it may be psychological, or a little of both. Whatever it is, the ease with which the bears took charge of Chinese stocks today says we're nowhere near the right risk-adjusted prices. At Another Fork in the Road While the momentum is technically bearish, I don't think it's a coincidence the S&P 500 stopped tumbling where it did. The bears were stopped cold at the 200-day moving average line (green), which may well be the grand-daddy of all the moving average lines traders watch. That's not to say a bounce is guaranteed from here (big or small). It's also not to say the S&P 500 won't cross under its 200-day line at a later date... maybe even in the very near future. It's just to say the bulls have another ideal setup to make a stand. Let's see what they do with it. My guess is, we will see a bounce come tomorrow; we've just logged five straight days of pretty strong selling. Just don't get too attached to that bounce. The S&P 500 is still on the underside of its 20, 50, and 100-day moving average lines, and any/all of those could end up serving as a ceiling and rekindling the bigger downtrend. Now, had it just been the S&P 500 that found support at an ideal level, I might overlook it. The NASDAQ Composite did the same though. That is, the NASDAQ Composite stopped short of crossing below the 100-day moving average line (gray), though it did break under the 20-day and 50-day moving averages right around 5070. The NASDAQ Composite looks less likely to stage a bounce effort. The path of least resistance here remains to the downside, even if we do see a brief pause in the downtrend here. The fact that the VXN broke above its key moving average lines today underscores the bearish argument. As for where any downside move could ultimately go before a bottom is made, I'm still eying the convergence of the NASDAQ's 200-day moving average line and lower Bollinger band around 4865 as the first checkpoint. After reading today's Elite Opportunity newsletter though, I think John Monroe's right on target with his initial target for the NASDAQ, which is a bit below the 4865 mark. It makes sense. Bottoms (and tops, for that matter) tend to materialize at places and in ways that most people don't expect. We'd expect the composite to find support around 4865, but in order to aggravate the majority of investors, the NASDAQ will have to hit bottom and reverse course somewhere else. And, as is always the case, John's got a trading framework that has spotted the most plausible bigger picture support level. I can't give you the number, of course, but I can tell you subscribing to the Elite Opportunity service will give you access to all the newsletter archives, including today's. John's downside target and rationale alone is worth becoming an EO member. From the Site Last but not least, a handful of goodies from the site popped up today. In no certain order... Palatin Technologies is Already Rolling, Even If Nobody's Noticed (PTN). Bryan Murphy has noticed something very peculiar, and very bullish, about this chart. Yelp (YELP) Earnings Report: Better Than Last Time? Online business review site will announce last quarter's earnings after Tuesday's close. The company desperately needs a win. Will it get it? Peter Graham takes a look. Despite Good News, Peregrine Pharmaceuticals is Hangin' By a Thread (PPHM). Finally, James Brumley takes an unbiased look at Peregrine Pharmaceuticals, explaining just how easily this seemingly compelling biotech story could take a turn for the worst with just one more bad day.