Here is why I expect a short-term bounce or consolidation before the SPX heads lower.

If you read my Blog, and my guess is that you do because if you didn’t you wouldn’t be reading this, you know that I think the equity markets may be setting up for a big move lower. This is because the SPYs are testing the very important $260 support level. This level has been where the lows have been for the past year. My guess is that this level will break this time around because interest rates are going higher now. I think that this will happen over the next few weeks or months.

However, I expect some kind of short-term rally or consolidation because the market is oversold, It is important to watch how the XLFs act over the next few days. They are testing important support around the $25 level. This level was significant support recently and it was important resistance last year. It is also important psychologically When they rallied off of this level at the end of October it is one of the main reasons why I was able to identify the bottom that was occurring. I will be watching this action closely because I think that it will give insight into the future direction of the broader markets,

The first chart is a two year view and the second chart is a two month view.