Any lingering hope of the bull trend getting started again without first suffering a big correction got much, much smaller today. There's still a smidgen of hope for a quick bounce from here though. Let's just start at the beginning, shall we? Now, some of what we need to get out of the way first about today's action is going to be obvious. Just bear with me - there's a reason we want to put all the details on the table right up front. Anyway... First and foremost, the S&P 500 broke under a recently-developed floor at 1966 today, as well as broke below the 100-day moving average line. That's a strong sign that the short-term bearish momentum has now become intermediate-term momentum, and as such is going to be much more difficult to stop. The NASDAQ Composite also broke to new lows (below 4465) on Wednesday, putting some distance between itself and the 50-day moving average line (purple) it had been stuck at for the past few days. Although the composite didn't fall under its 100-day line (gray), the NASDAQ's Volatility Index (VXN) did manage to punch through its ceiling at 18.1, and continued to accelerate its uptrend. [The S&P 500's Volatility Index (VIX) interestingly didn't move to higher highs.] That's not even the worst of it, however. Remember yesterday how we mad a point of pointing out the S&P 500 had been riding a support line higher since late 2012? That line broke down today too. The scariest part about the break under the long-term support line is how the VIX still hasn't really surged to crazy, peakish levels around 21.5. There's more room for the VIX to keep rising, which means there's more room for the market to keep falling. And, now that the major, long-term support level has been snapped for the S&P 500, this could be the proverbial "big one" that we've managed to sidestep for months now. Given everything we've seen up through today, we'd have to say the scales have tipped in favor of bearishness... not that they weren't already. Just in the interest of looking at both sides of the coin though, we at least want to acknowledge how there are a couple of ways the bulls could still recover relatively unscathed here. One of them is the distinct possibility that crossing under the 100-day moving average line is NOT a sign of the beginning of a melt down. Instead, it could simply mean all the necessary selling is now out of the way and the market's reset button has been hit. There's some strong historical context for this possibility too. Take a look at what happened back on August 7th, which was the last time the S&P 500 closed under the 100-day moving average line (gray). It reversed course the very next day and didn't look back until the S&P 500 had hit record highs. Ditto for the April 11th instance. The same can be said for when it happened on February 3rd. In fact, you can go back to late 2012 and find about half a dozen more times the S&P 500 recovered after what looked like a highly bearish event in the form of a close under the 100-day moving average line. With all of that being said, I have to give credit where it's due - John Monroe over at the Elite Opportunity newsletter has been threading the needle when it comes to spotting reversals, and it's largely because of him we've been able to navigate this chop so well recently, all the way through today's breakdown. While we all basically learned to trade by looking for momentum, he has tools and an approach that are far better suited to do the required dance when trying to make sense of this back and forth market. In simplest terms, John has realized that stocks have been more apt to reverse of late than they've been to follow-through, and those reversals have come at points in time when it looked like anything but a reversal was in the cards. With that as the segue, there are a couple of snippets I want to borrow form the Elite Opportunity newsletter today that better explain what John's got on his mind: "With that being said, I will say we are finally approaching levels, whereby the major indices may want to bottom out, at least for a while. This should put investors who want to start stepping back into the markets in a pretty good position because if we can catch at least a sharp tradable bottom as soon as this week or early next, it will position investors willing to pick up some stocks on the downside capitulation with entry levels that could end up being favorable over the near-term and potentially even the long-term.... ...First, I've said this on many occasions of late, I'm still convinced the NDX needs to blow through 4,000 in order for it to put itself in a position to mend. I've also continued to suggest small caps won't start becoming attractive again until the Russell 2,000 (RUT) can breach roughly 1,083 to the downside. The good news is we're almost there. As for the S&P 500 (SPX), I mentioned yesterday a move to roughly 3,968 or so on the NDX should equate to roughly 1,948 on the S&P 500...." Do you know where the NASDAQ 100 bottomed today? At 3972.9. The S&P 500 hit a low of 1941.7. The Russell 2000 traded as low as 1083. Those lows are eerily close to the short-term support levels Monroe was discussing, and it's really got me thinking about the potential for a sharp bounceback now (even if just a temporary one). How would crossing under those levels spark bullishness? By taking out a lot of stops (psychological and actual) right around those marks, shaking people out of their bullish trades at an inopportune time, and then forcing them to chase the market higher if they want back in. Remember, it's the market's job to frustrate as many people as much of the time as possible. Reversing course after today's scary meltdown would definitely cause plenty of frustration. And, given how well John Monroe has steered Elite Opportunity subscribers through the minefield of late, we have to keep our mind open to the possibility he pointed out today. Just so you know, though, it's possible John's bounce theory could be correct in the very near-term while my bigger-picture correction theory could also still be right down the road. In fact, that's the outcome I'm willing to predict here.... a bit of a dead-cat bounce now, and then more of a correction later in the month. [Disclaimer: The comments above were nowhere near everything John told his readers today; there was much more context. You can check out the rest of this context using this offer. Or, cut and paste this link: https://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/] With that backdrop in place, we can't help but wonder how much of the current meltdown is ultimately being fueled by the market's long-standing valuation problem. We've felt the market has been pushing its luck on the valuation front for about three quarters now, but only reached a brick wall a month ago when the trailing P/E got within reach of 18.0 and the forward-looking P/E was in the mid-15's. It's just more than most investors are willing to pay (and keep). The beginning of the third quarter slightly changes this picture. If the S&P 500 actually earns the expected $30.06 per share for the third quarter, then the market is currently priced at a trailing P/E of 16.9 and a forward-looking P/E of 14.8. Those are still on the high side, but much more palatable than the valuations we were dancing with just a month ago. My honest guess is, this correction is nothing more than a necessary move to bring the trailing and projected P/E ratios back in line with the norm. The question we all have to ask ourselves now is, how much more correction do we need to right-size valuations? If it helps, on Tuesday we mentioned how a slide to the 1815 level for the S&P 500 would be a 10% correction from the recent high. At that price, the trailing P/E would be right around 15.8 and the forward-looking P/E would be 13.7.... much closer to the long-term norm. If you think those are the "right" valuation levels, then all of a sudden there's a whole lot more context for a full-blown 10% corrective move. I wouldn't be a bit surprised to see the VIX peak around 21.5 if the S&P 500 renewed its bearish thrust that started in earnest today. Let's just make sure the bullish pushback John Monroe was telling EO subscribers about in his newsletter today isn't going to do anything to change stocks' bearish fate. I'm pretty sure it won't. Again - and I can't stress this enough - neither John Monroe nor myself think this is the beginning of a long-term bear trend. Earnings are still on the rise. At worst it's a normal bull market correction, and there's still a smidgen of hope it isn't even going to be that harsh. We'll have to see how things play out if and when the S&P 500 retests its 50-day moving average line. I'm predicting any test of this intermediate-term moving average line will be met with another bout of selling, now that the bears have let the cat out of the bag.