The market averages have broken down and broken support, except for the Dow. This is the first time that can be said since this past March. We are looking at a strong possibility of a retest of the 2400 level. If that should fail, it is possible that a much more serious bearish market could develop. But as long as the 2400 support level holds, the $SPX chart will remain bullish.

The equity-only put-call ratios are both on sell signals. The weighted ratio is a "cleaner" chart, and it just gave a sell signal at the close of trading on August 10.

Market breadth may have finally begun to resume its place as a valued indicator. The breadth oscillators rolled over to sell signals at the beginning of August and have correctly anticipated this correction. They remain on sell signals, but are oversold at this time.

Volatility has been the subject of concern for many traders and analysts for some time now. It exploded yesterday. $VIX has NOT been above 16 for months, and as long as that is the case, the damage in stocks will likely be contained.

In summary, the long-awaited correction has begun. Oversold conditions are already appearing, and even one day of rally might generate buy signals. We will follow the signals wherever they lead us, without getting hung up on downside targets or duration of the correction.

Lawrence G. McMillan is the author of two best selling books on options, including Options as a Strategic Investment, and publishes several option trading newsletters.