Nikkei Tanks - SPX Uptrend Over

As of 6AM EST, ES futures are down 16 points (~1103) due to China stock markets pulling back. If US stock markets open below 1119 (and they most likely will) then the ES rising trendline that I have counted on for weeks to provide me with profitable long trades will be broken. It is now prudent to reduce exposure to the long side and begin shorting again.

However after a closer look at the Nikkei chart it shows that the Nikkei 225 stock futures (/NKD) dropped to their 50% fibonacci retracement level near 9192 today. From the chart one can see that the Nikkei has bounced off of this 50% support level 5 times in past year so it is a strong support level.

SPX cash is shown in purple. Consider the price action in SPX compared to the NKD during October-November 2009. During that time Nikkei tanked and hit the 9192 level but all the while the US market traded sideways and refused to pull back.

So my conclusions are that unless some miracle pushes the US stock market futures back above 1119 by open, the uptrend in SPX is over. However at this point I would limit downside on SPY to ~109.8. This is a substantial drop, but not large in the grand scheme of things. On the downside, SPY may be headed to 107.1 to fill the gap there. But I believe this will hinge on whether or not the Nikkei drops below 9192. If Nikkei holds above 9192 then I favor SPY to recover.

I have to give up on my SPY 116 target now and switch to the short side. My strategy will be to move to ~90% cash and 10% short via vertical spreads. I will wait for a better intraday opportunity to open up put positions because it is possible that ES rallies back to 1119 to backtest the uptrend line before a final selloff so buying unhedged puts at open could be disastrous.