While the recent market action seems to be severe, from the big picture point of view all that's happening is that the market is pulling back to its monthly moving averages and its decadal pivot. The mid-point of the range from the 2007 high to the 2009 low is 1121.44. If we count the end of the decade as the end of 2010, then the traditional pivot point would be 1166.84. I expect the low of the current correction to be somewhere in the range from 1100 to 1160. That doesn't mean that the market can't go lower, but the probability is that it will find some sort of bottom that lasts at least a few weeks before it would do so.
The pivot for 2010 is 1177.05 which will provide additional support. Also, we have the following for 2010:
R2 - 1428.74
R1 - 1343.19
P - 1177.05
S1 - 1091.50
S2 - 925.36
Note: the February 18, 2011 high was 1344.07 and the July 21, 2011 high was 1347.00, both of which were right at R1 (coincidence?). We've seen failure at that level 5 times this year. I guess that shows how important it is. If 1345 is regained, then 1428.74 would be the next.
For 2001 to 2010 we have:
R1 - 1666.89
MP - 1416.87
P - 1166.84
MP - 962.22
It may take another week or so to test the 1091.50 to 1177.05 zone, but a move back to 1343 or at least 1260 would not be out of the question.
We now have a deeply oversold market similar to 1998 and 2001. While new highs are not a given, the rally off of the September 2001 low was almost 25%. I suspect we may see something like that soon. What happens afterward will depend on what kind of rally it is.
I plan to be a buyer on any solid advance back above 1180 from below.