Most likely the bottom of this correction has already happened, but it would not be surprising to see a base being formed in the coming days and possibly weeks. Purely from a price perspective, we can comfortably say that the stock market will probably not break below recent lows, but a quick reversal is unlikely as well. We may have to be patient a while longer, even though we believe that the lows of this correction are already in.

The first chart is of QQQQ. We used Fibonacci lines to show the uptrend from March of 2007 through July of 2007. A typical large correction will fall to the 61.8% retracement area before continuing higher. The ETF did fall below that level, but reversed within the day. We do not foresee a move below recent lows. Also, we have used diagonal lines to show the recent fall. The red lines show the first and second legs down while the green line shows the consolidation (or correction) in between. This pattern is very common in corrections within a larger uptrend. Two legs down seperated by a small leg higher. We have also shown significant resistance lines on 48 and 49.20 areas. A sustained break of 48 would suggest a quick move to 49.20 and a break above 49.20 would suggest that the bottom is definitely in. Therefore, we can assume that a sustained break above 48 will signal that the downtrend has ended.

We have shown similar red and green lines on the chart of SMH. SMH did fall below its 61.8% retracement for a day, but with the recent increase in volatility, there is little reason to be concerned about that. Just as support and resistance lines lose reliability in more volatile markets, so do Fibonacci retracements. Regardless, they are a good tool for measuring where you are in a current trend. A sustained break above 38.50 should bring us to 39.50. A break above that will definitely signal that the downtrend has ended. Just like with QQQQ, a break above the first major resistance (38.50) should signal the end of the current downtrend.

IWM is clearly in a double bottom formation. As long as the ETF stays above the 76-76.40 area, we can assume that the bottom is in. The Fibonacci lines are there to project a possible target for IWM - 86.30.

It is not clear how quickly the stock market will recover, but it is likely that the bottom is already in for all three of the ETFs we follow.