Williams say low Fed Funds rate is the new normal.  Global headwinds require continued accommodation.  Not helping…

Let's put some hard numbers on these indexes so we don't have to have this conversation over and over again:

• Dow topped out at 18,000, which is only 2.5% over the Must Hold Line.  The run-up is from 14,000 so 4,000 points means 800 and 1,600-point pullbacks are fine and that means 16,400 needs to hold to confirm the Dow is still in a bullish trend.  If the Dow FAILS to hold 16,400, then it's not in a bullish trend and we're simply back to make or break at 16,000 and then we're looking at the run from 14,000 to 16,000 is 2,000 with 400 and 800-point pullbacks and 16,400 is a 20% overshoot of that run anyway.  Was 17,200 significant?  Yes it was all month as support so that means we're still working with numbers from the run up, not off the top and that's actually a bearish indicator because we haven't really moved into the new levels yet.  
• S&P broke out at 1,600 and ran to 2,100 so 500-points means 100-point pullbacks to 2,000 and 1,900.  If 1,900 fails then right back to test 1,850 and the S&P would be in the same boat as the Dow, using the Must Hold line as a pass-fail for the rally.  
• The Nas in the Big Chart should be NDX or the Nas 100, not the composite.  We switched to using the Futures for consistency but the Big Chart never got updated so the grid numbers don't match the chart.  Hopefully StJ can fix that or, if not, I'll have to re-work the numbers for the Composite but I'd rather use the NDX because we can watch the Futures on that one.  Anyway, on NDX, we ran from 3,500 to 4,700, which is 800 points or 22.8%, so 20% with the overshoot.  We expect 160-point pullbacks to 4,540 and 4,380 and that failed so, looking from the bottom, we have a Must Hold at 4,000 and 4,200 is 5% and 4,400 was 10%, so those are our supports and it looks like we'll at least test 4,200 but nothing really stopping us from testing 4,000 now. 
• Russell popped 1,000 and hit 1,250 (non-spike) so 50-point pullbacks would be 1,200 and 1,150 but those are totally blown so we aren't in the new channel, we look back to our Must Hold (1,200) and we're more than 10% below it so clearly bearish until we take it back, which means we should be shorting the other indexes since the NYSE confirms it.  

See – not complicated!  

BBY/Rookie – I don't want to get out of everything just yet.  I still expect China to do something big this weekend.  If we're wrong, we still have mainly cash and can adjust.  

Disaster hedges/DC – As new one, I'd go with the SDS we talked about in yesterday's morning post or here is a current play for the STP:

• Buy 50 SDS March $22 ($1.70)/$27 (0.70) bull call spread at $1 ($5,000) 
• Sell 5 AAPL 2018 $80 puts for $9 ($4,500) 

That's $25,000 worth of protection for net $5 and, of course, you don't have to use AAPL – any stock you REALLY want to buy if it gets 20% cheaper would do.  This pays off in full if the S&P falls more than 10% from here (1,750). 

SQQQ is at $22.75 but, since it's a 3x ETF, a 10% drop in the Nas can take it up 30% to $29.50 so:

• Buy 50 SQQQ March $23 ($2.75)/28 ($1.45) bull call spreads for $1.30 ($6,500)
• Sell 7 AAPL 2018 $80 puts for $9 ($6,300) 

That one is net $200 on a $25,000 spread and your worst case is owning AAPL for net $80.29!