We are now at a multi-month low, very close to the lows of the year. The very critical 1070 level on the E-minis have been breached after-market (see screenshot below, source: InteractiveBrokers). The next critical level, is 1050.
While I expect lower lows soon, the markets are very compressed at the moment, and I wouldn't exclude a powerful relief rally Friday or Monday.
click for bigger view
One point of interest is that Jeremy Grantham, the Bull disguised as Perma-Bear published his report on the very day where the markets peaked. Consequently, he was the perfect contrarian indicator. Let's remember what he wrote:
Do not think for a second that a very stimulated market will go down in Year 3 just because it’s overpriced ... even badly overpriced. So far it has had 19 tries to go down since 1932 and has never pulled it off. We can, of course, hope that this time will be exceptional. Even in the best of times, though, overpricing is only a mild downward pull. Its virtue is that it never quits. Eventually it wears the market back down to fair value.
The general conclusion is that the line of least resistance is a market move in the next 18 months or so back to the old highs, say, 1500 to 1600 on the S&P, accompanied by an equivalent gain in most risk measures, followed once again by a very dangerous break.