Highest Put Volume of the Year

Monday could have been the bottom of this pullback, probability of around 30%. The put volumes were highest of the year, and the daily put/call ratio was the highest for the year. 

The price action was definitely panicky, as we haven't seen that kind of down move on consecutive trading days, ES 4460 to 4300, over 160 points.  

Stops were definitely hit, as there was quite a few dip buyers who got in early, not wanting to miss another V bottom.  But the signs of complacency last week were in plain view and wasn't what you typically see during bottoms, especially ahead of negative catalyst events: possible Fed taper, budget deadline, debt ceiling, tax hike negotiations, etc.  

Those events are still ahead, but at least you have taken out some of the complacency, stopped out a few weak hands, added some put protection, providing better risk/reward for longs.  

In strong bull markets, when you are still in the low volatility uptrend phase,  waterfall declines are rare, and even 5% corrections are much less common than most people think.  If they do happen, they are usually followed by new 52 week highs after bottoming.  

At SPX 4380:

Over a 2 day time frame, slightly favoring shorts, but not by much, since I am leaning toward weakness Thursday and Friday.  

Over a 2 week time frame, odds favor longs. 

Over a 2 month time frame, odds are heavily in favor of longs.   

Tomorrow is the much awaited FOMC meeting, where Powell is probably going to be dovish as usual, as he's still auditioning for reappointment and stocks have gone down recently.  I would use any rally on a dovish Powell to sell stocks and reload either Thursday or Friday when the euphoria quickly wears off.  Evergrande is the talk of the markets, so that will make fast money investors reluctant to get long ahead of the weekend.  

A move back down to SPX 4300 or a slight move below that key level later this week would be a buying opportunity.