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Bears seize the day.
One of the wisest clichés coming from Wall Street is: "the trend is your friend." If your friend deserts you, watch out.
In August, the trend was clearly up. You can see this by lining up the lows of Aug. 3, Aug. 11 and Aug. 23 and drawing a line that extends through the present. Two points just make a line; a third point makes a "trendline."
On Sept. 6, the Comp opened below the line. Typically, the bears will seize the opportunity, elbowing their way past the bulls to hit bids. But remember, a lot of bulls had already become suspicious of their friend, and may have beaten the bears to the punch. This gives the impression that only a few nervous longs remain, and any further decline is a result of bears going short.
A short market is a bullish one, since any halt to declines may cause bears begin buying to exit their positions.
Are there any stop signs on the horizon? Let's ask Fibonacci, a 13th-century mathematician who discovered a "golden" ratio (0.618) that existed throughout natural systems. And since many market watchers believe the market is a living, albeit man-eating organism, technicians have been fast to apply the ratio to their analysis.
If a retracement stays within 61.8 percent of the previous move, the original direction is thought to remain intact. From the intraday low on Aug. 3 (3,521.14), the market moved up 738.73 points to its Sept. 1 high (4,259.87). 61.8 percent of that move is 456.54 points. If you subtract that from the Sept. 1 high, the Fibo comes in at 3,803.33. Granted, that is a long way away from Friday's close. But if the Comp manages to fall to that level, bears have had a lot of opportunity to get short.
Next question, how likely is the Fibo to stop the decline? Like the 200-day moving average, the Fibo can be very reliable if the market has recognized its significance in the past.
Technicians take the ratio a step further, and look at its inverse (0.382) as support/resistance. 38.2 percent below the Sept. 1 high is 3,977.68. Is it a just a coincidence that Friday's low (3,977.47) nearly matched that to a tee?
Is the market is creating what bulls refer to as a bear "trap?" The inconclusiveness of the sell signals is suggesting a "wait-and-see" approach. The Fibo may well reward any bulls that decide to endure any short-term pain.
Tomi Kilgore is a reporter for CBS.MarketWatch.com.
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