The change in sentiment was palpable last week as the S&P 500 convincingly broke below its 50 day moving average but was the technical damage as severe as it felt?

A panicking investor doesn’t make money so lets counteract it with some perspective. Even in the choppy market of late, the market was severely overbought on all charts and timeframes. Sentiment was far too bullish. Everybody knew that a correction was coming—they just didn’t know when.

Not only did the market break down, it did it with volume suggesting that the so-called “smart money” sold along with retail investors. Investors are clearly concerned but again, perspective is key.

On Friday, the S&P sold off to 1,577—a perfect back test. Then, it rebounded. That’s bullish but attempts to buy on the dips, something that worked so well in the recent past, were easily fought off by the bears. The market tried to rally but couldn’t. For now, we’re in a technically broken market and all signs indicate that the selling isn’t over.

If the selling isn’t over, how much lower will we go? As of Monday morning the index is at 1,592.43. First, the bears will have to break through the strong 1,576 level. After that, watch for 1,550, 1,540, and 1,520.

Futures indicate a lower open on Monday. You could try to short the market but anything involving timing the market direction isn’t likely to pay off. Wait for those great long opportunities to present themselves.