Bad News Is Becoming Bad News

Bad news is becoming bad news, and that's bad news.

The market didn't like yesterday's dismal German industrial production news. Just a short time ago that would have meant "more QE." Yesterday it meant "get shorty."

With yesterday's weak close below the 1940-1948 zone (and below the 78.6% level at 1937.12) it may be fair to say that the market is in correction mode to much lower levels.

If so, it might first signal its intentions by breaking a major swing point.

That swing point could be 1904.78.

The 200dma sits just below at 1903 and the 50-week moving average is just below that at 1887. It may be time to "touch base."

I'm trying to be open to this new scenario while betting that it won't happen. It's not easy.

While last week's rally was large enough to take some pressure off, it never did get above 1985.17 to break the decline.

If the current decline extends beyond 1926.03, 1904.78 could immediately become the target. So the market is at a key juncture.

Could the market get below 1926.03 and reverse? I believe it can, but it would have to be quick about it. The longer it remains below it, the more time it has to feel comfortable there and gather strength for the next target. And that's 1904.78.

The 1985-2000 area is not off the table, but it's fading. I'm holding VIX 17 Dec. calls against OEX 880 weekly calls. One side will win and one may lose, but it's a way to play both sides of the game until the market tips its hand.