Ouch. Well, for the first time in a long time we can actually say the market suffered some damage it may not be able to simply shrug off. This isn't to say stocks are going to make a beeline to what will be a major, capitulatory bottom. In fact, I'd be willing to bet we're going to see a few more bullish thrusts in the days ahead. Overall, however, it looks like the bearish ball is now rolling and there's little that can be done to stop it anytime soon. We'll show you exactly what KO'd the market in a moment. The first thing we have to make sure we get out of the way after today is shedding some of what little market exposure we have. So, here goes - sell your Columbia Banking Systems (COLB) position. Just so you know, we still like the company for the long haul. This is one of those stocks that can be kicked around quite a bit when the environment isn't a bullish one though. So, we're not going to bother risking it now that COLB has broken under the key support level we were counting on to drive the stock past $26.80. We're going to keep Columbia Banking Systems on our watchlist, searching for a better entry point. In other words, we're going to wait for the breakdown to run its course and then start watching for the recovery. We almost pulled the plug on JC Penney (JCP) too, but I noticed the chart seems to have found something of a floor around $10.03. That's basically where shares hit a low today, and where they bottomed on Tuesday. The 50-day moving average line is there right now as well. We may as well see if this support area can do us any good, since we don't have much to lose from here. Any convincing move below $10.00, though, and we're going to cut bait on JCP. We're going to hold onto ePlus (PLUS) for the time being. It was down quite a bit today as well, but the long-term support line we like so well on its weekly chart is still intact. So, we're keeping two and shedding one as we head into what could be a rough patch for stocks. This is the point where many of you may be asking if we're going to hedge the long trades were still holding by taking on some bearish (and leveraged) ETFs. The answer is maybe, but probably not. We've mentioned before how being an end-of-day newsletter makes it tough for us to do certain things. One of those things is short-term hedging, which pretty much requires you to focus on intraday charts and get into and out of positions during market hours. See, the bulk of the market's movement in volatile periods like the one we're apt to be in now tends to happen overnight. If you're getting in at the market's open, you're probably missing out on the bulk of the net movement. This isn't to say we absolutely won't be getting into any bearish ETFs or put options [which are my preference] in the foreseeable future. It's just not likely. If you really want to capitalize on any rapid pullbacks, my advice is becoming a member of the Elite Opportunity service. The bulk of what John Monroe and his team do is short-term swing trading, including market-based ideas. Today's edition of the EO was no exception, as Monroe named a specific downside target for the NASDAQ 100. He also explained the rationale, of course, and told all his readers how he's expecting stocks to get to that target. If you'd like to know where this trading guru thinks things are all going to land, now would be a good time to use the free two-week trial offer. Here's how to get it. Or, cut and paste this link: https://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/ Now, let's get into our market analysis. Beyond Repair Where do we start? Let's just start at the beginning. Today, the S&P 500 broke under a pretty important floor at 1980 and simultaneously broke under its 50-day moving average line (purple). Both had been support levels before, and seeing them fail today is a big bearish clue. We still can't rule out the potential support role the 100-day moving average line (gray) could play at 1955. It was the reason for the rebound in early August, and as we saw a couple of days ago, the S&P 500's tests of the 100-day average since 2012 have all resulted in another bullish leg. Still, we can't assume it's going to happen this time around. The good news is, we'll know soon enough. The NASDAQ Composite also broke under its 50-day moving average line, and broke under the last of its important floors too. This is a tricky situation. It's bearish in the most straightforward sense, but you don't need me to tell you how reversal-prone stocks have been lately. Maybe a decisive break under the intermediate-term moving average lines took the wind out of the sail of the bull, and will allow the downtrend to proceed without any major pushbacks or interruptions. I don't expect this to be the case though. I've got a feeling we're going to see the same up-and-down stuff all the way down to the ultimate bottom. And yes, while volatility is still in the cards, I do think today's damage means we're now in a net-bearish phase. As such - and as we mentioned to you yesterday - it's time to start thinking about longer-term floors. Just to preface the discussion, investors are in a bit of a pickle here. There are floors just below today's lows, which means any selloff is going to be limited... to maybe a slide of only 3% to 5% from the recent highs (depending on which index you prefer to follow). If those nearby floors don't hold, the ensuing meltdown is going to be much bigger than we've been used to since early 2012. With that backdrop in place, let's first look at the weekly chart of the S&P 500. The dashed horizontal line represents a 10% pullback from the high of 2019.... the typical correction during a bull market. As you can see, we haven't seen a dip of that size since 2011. As you can also see though, the dual floors of the 100-day average line (blue on this chart) and the rising support line (solid, red) are both right around 1955 here. The S&P 500 could test that level with just one more bad day. The $64,000 question is, then, is the worst already over, or are we finally going to go through a normal-sized correction? One could argue that this lull isn't any different than prior ones, and shouldn't be any worse when it's over. That's not exactly the case, however. This is the first time the trailing P/E is a frothy 17.5. We need a sizeable correction to burn off of this froth. For perspective, a 10% correction to 1815 would pull the S&P 500's P/E ratio down to about 16.2 and a forward-looking P/E of 14.1. That's closer to the norm, and actually leaves stocks somewhere to go. I'm also keeping an eye on the VIX. There's a ceiling at 21.4, and I've got a feeling the S&P 500 is going to find its floor around 1955 right around the same time the VIX tests its ceiling. If the VIX happens to break through 21.4 and the S&P 500 breaks under 1955 (both should happen around the same time), then buckle up. At that point, the S&P 500 is likely to fall all the way to 1815 before the bleeding stops, and the VIX will have to race all the way to 48.0 where it peaked the last two times stocks went through a normal-sized correction. The NASDAQ Composite and the VXN are telling a similar story. We'll show you the image, but there's no need for discussion. My guess is, this is finally going to be the time we pay the piper in full and go through a normal-sized bull market correction. At this point though, we can wait for confirmation. That is, we can wait for the S&P 500 to either recover or not recover when 1955 is tested before assuming the worst, though I'm planning for the worst already. The S&P 500's 1815 level was something of a natural floor back in April anyway. The 4150 level for the NASDAQ was a point of contention around the same time. And again, both of those lines represent the normal, 10% correction from their respective highs. People will be freaking out by that time, if it all goes down as I expect it to. Don't freak out with them. It will be a short-term selling opportunity and a long-term buying opportunity we intend to take advantage of, even if it seems like a crazy idea at the time. It's always darkest before dawn, and stocks rebound when the masses believe the worst. You just have to know how to spot it. Although it's unlikely we'll be taking on any bearish or leveraged bearish ETF trades here in the SCN newsletter's portfolio, I'm sure John Monroe will be doing so for the Elite Opportunity subscribers. Even if he didn't take on one single index-based trade though, his common sense and disciplined style of trading analysis can safely guide you all the way to the market's bottom. More important, his trading acumen is going to help you find the market bottom at a point in time when everyone else is hysterical. I can't recommend the EO newsletter enough. Take a look at it for yourself, especially if you're getting nervous about what's coming within the next couple of weeks. Here's the deal. Or, cut and paste this link: https://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/