Stocks Tread Water . . .

As expected, despite a quite volatile day, set off by political turmoil in Hong Kong, S&P gapped down on the open but managed to move back up, closing down just 0.36 on SPY, finishing at 197.54.

I mentioned yesterday that I expected the market to possibly rise today in a set-up for tomorrow's three-day test of the low. 

The price target is 196.34.  Should SPY test this level and hold, then we can expect a bounce.  Not quite certain though that it will hold the low.

Size (volatility measurement) continues to rise, supporting my expectation that the move down will continue.

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Jumping ahead, a long term view of SPY:

Should SPY break below 194, I expect it to drop to the last low, around 190 and bounce back up before heading on down to the bottom of this long-term channel, at 170.

Notice early in the chart, when price broke below the trend line, it rallied back up to try to break above that trend line.  When it failed, it sold off quickly and dramatically.

This downtrend has yet to be confirmed and tomorrow's test is very important.  In addition to it being a three-day test of the low, the 196 level is also the value of the 20 week moving average, discussed and illustrated in yesterday's weekend report.  The 20-week moving average has been a key support level for more than 2 years now so breaking through will be a significant accomplishment for the bears.