Market Crash Redux

The market action continues to trace out a rhyming couplet with the flash crash correction:

Today's gap gives us the first measurement point using my gap projection technique. If we extrapolate today's gap as a future .618 retracement then the projected bottom is 116.40. This falls within the gap fill area of our expected bounce point.

Lending weight to the analysis is the fact that this projection technique worked correctly during the flash crash correction. The market action is very similar between these two corrections. Today the market rebounded in a single day. During the flash crash correction the same thing happened but it took two days to map out the same pattern. The gap that was created however accurately predicted the bottom. We should only be so lucky as to get an opening gap tomorrow at 112.96!

I wouldn't count on an exact to-the-penny projection, or a perfect gap fill, or the market stopping on a dime. Like the flash crash correction bottom, I would look for momentum to slow and create a curving bottom. Stochastics are at about the same place now that they were back in the flash crash correction at this point so that also gives us some indication that it will be time for a long position. RSI and composite also tested support back then. If do so again this would bring the market down into the 104 range.

I also wouldn't necessarily count on this being the beginning of another bull market like the one that emerged from the flash crash correction. It's quite possible that bump #3 leads to a deeper low (whereas in 2010 it was a .618 retracement). Market action should alert us when the time comes.