Speaking of the Financial Ninja, he called Monday as the day the Trend changed:
Reasons why the sell off yesterday was not just a profit taking correction, but a trend change.
1) Yesterday was a Major Distribution Day. When this occurs AFTER a large, long rally it signals a trend change.
2) After a big decline in volatility (VIX) the sell off was confirmed by a 15% spike in the VIX.
3) The US dollar index (USD) strengthened, clearing resistance and is now above both the 20 and 50 day EMAs. A strengthening dollar represents a flight to safety and foreshadows weakness in equities.
After all, the market is The Most Overbought Market in at Least 23 Years.
That last link directed me over to Quantifiable Edges who corroborated the idea that unfortunately, deeply oversold markets offer superior swing trading signals than deeply overbought ones:
As you can see above, returns have generally been positive following other times the indicator has reached extreme levels. On the low end the results are about the same as the long-term market drift. While not shown, periods leading up to 20-days are also all generally positive. As the indicator moves higher the results look even more bullish. But instances are incredibly low, so not much can be extrapolated. I see two points to take away from this exercise: 1) When the market gets extremely overbought that is not necessarily a bad thing, and on its’ own is certainly not a signal to sell short. 2) By this measure the market is now more overbought than it has been in at least 23 years.
And a reader kindly pointed me to Tim Knight's Slope of Hope blog. Knight looks to be targeting ~815 on the S&P, which I find to be quite agreeable with my market outlook. Click on the link not for his simple chart, but also for the 120+ comments/discussion he generated.