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The large-cap indexes are still stuck in a range. 280 is an important area for SPY (NYSE:SPY). It coincides with its 200-day moving average. If it is broken, the odds are that 260 will be tested.
Small caps are looking more vulnerable, struggling below their 50 and 200-day moving averages. If 145 is breached, IWM will likely test 140, which is only 4% away. Below 140, we are looking at testing the December lows.
The odds are that SPY and Invesco QQQ Trust (NASDAQ:QQQ) will test their momentum lows from early August and when they do, we will be watching for potential divergences. If fewer stocks are testing their lows, there is a good reason to believe there will be at least a short-term bounce. If more stocks are testing their lows, we will see another leg lower in the indexes.
I have traded through multiple corrections of different caliber in the past 15 years and the same patterns always repeat. There is nothing to be afraid of. Corrections create amazing opportunities. While they last, they are great for intraday traders. When they end, they offer incredible entries for swing and position traders.