After opening sharply lower, stocks immediately rallied and wild open caused the VIX to spike and could indicate some sort of capitulation, but

The S&P 500 has successfully rebounded off of the 200-day EMA so far, but it is certainly not out of the water yet.  The broken support continues to act as overhead resistance, and with yesterday's volume being near holiday trading levels, it is obvious that the big money has not jumped in yet. 
                        
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

From a contrarian standpoint, almost everyone on the financial TV channels are as bearish as can be, and they are looking for the market to head right back down after a short bounce.  I can't say I don't feel that way as well, but I don't invest / trade on my feelings because I know I am part of the dumb money, and I don't trust what I "feel".  I would still like to see the S&P test the 50-day EMA and determine how to proceed based on if it acts as resistance or if it gets broken.

While the old support / new resistance is holding on the S&P 500, the market leader Dow Transportation Index has now broken above it.  The 20 and 50-day EMA's could act as resistance but it is a positive sign to see the leader hold above the 200-day EMA and break above the first wave of resistance.

                          
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The small caps have also held above the 200-day EMA so far, which closely corresponds to the lows of March, which has also held.
  
                        
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

But the other market leader, the Nasdaq, has not held above the 200-day EMA.

                          
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

We know the economy has at least hit a soft patch and QE2 is coming to an end in days.  The question is, has the recent pullback already priced in these negatives?  A "normal" market correction can be defined as a 10% pullback from the highs.  The S&P 500 is currently 6.8% below the high made on May 2, and at its low it was 8.2% below.  So, as of now this can be considered nothing more than a "normal" pullback in a bull market. 

If we start seeing 10% or more, which would bring the S&P 500 down below 1235, then we would also see the longer-term support lines I posted yesterday (and reposting below) get taken out and at that point I will have to take a reality pill and get more in the bearish camp.
                          
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Until then, buying the dips may be a good risk reward play because the downside support is not that far away and barring a crash, we should have time to get out with just modest losses from here.  For the record, despite many warning signs from the charts and our premium services, I did not sell and have rode this pullback most of the way down.  Like I said - I'm the dumb money.

Thanks for reading!   We'll see you back here tomorrow.