Markets saw one of the biggest drops over the past many months – and this tells us that bears are well alive. As we broke below 1840 which was my “key level” for markets to hold , it told me correction had began. Also mentioning few weeks ago that we had a Tom Demark 13th sell signal on the NFP day , told us that a key reversal was likely.

Ok so here is my thoughts:

1. NYSI still overbought and can go a lot lower ,, this is negative for markets and it remains on a SELL signal.

2. VIX has still room to run higher imho , but expect a short term pullback on VIX soon after hitting key levels like 20-21

3. SPX and NDX is likely to find a SHORT TERM bottom at around 1780-1800 on SPX , this is where I expect markets to see a healthy rebound, also NDX is likely setting up a longer term BEARISH pattern, but a rebound is due soon.

4. Gold is one of the only few sectors which will do well when mkts dropping , Gold so far had a great week and expect gold to see 1380$ ounce in the near term, I remain still very bullish on Gold for rest of 2014.

Conclusion:

All in all , expect some early weakness , markets should find a short term bottom around 1780-1800 after some final flush out, then we should see a good rebound higher for few days before going down again. This correction might last few months.