After Thursday's pre-holiday decimation I wasn't surprised to see spooked investors still heading for the door on Monday morning. Simultaneously, I wasn't surprised to see a bit of a bullish pushback later in the afternoon. Bigger picture, I'm not surprised to see a big chunk of the March/June rally given back last week either - I've been singing that song for a while.
As for what's likely to be next, here's how I see things playing out....
With as much optimism as we still see floating around out there right now, it's not likely the value-hunters will overlook the discounts created late last week. We saw a glimpse of this yesterday, but I think a little more 'up' could be on the way.
How much 'up'? Probably not a lot (for now anyway). In my opinion, the S&P 500 isn't likely to move any higher than 919 without moving lower first.
See, last week's highs were capped by the 20 day moving average line, which still looms as resistance at 919. I do think - eventually - the market will be able to break through that ceiling, but not quite yet... the market hasn't quite inspired enough doubt yet.
As before, I think the S&P 500's first major Fibonacci retracement level at 847 will need to be touched before the psychological slate is cleaned. That should be worrisome/troubling enough to wash out the weak and nervous holders, but not so ugly that it discourages new buying (or re-buying).
If for some reason 847 does not hold up as support (a less likely possibility), then the next checkpoint is 778. I don't foresee retesting March's lows at this point.
There's a secondary floor for the S&P 500 possibly in place at May's lows of 880. I don't expect it to be a major factor though.
Unless you're something of a day trader looking for a quick scrape from a market bounce, this is something of a waiting game. I'll send out my follow-up thoughts on when things develop further.