The catalyst for today's smackdown was World Bank's downgrade in their economic outlook. This was the excuse the market needed to go down....it was a weak excuse but it doesn't matter. I believe had they not came out with this announcement some other catalyst would have eventually caused the market to drop. I recall the day when the market bounced off the November bottom. The reason for the massive rally that day was the announcement that Geithner was going to be appointed by Obama....which wasn't really suprising news nor meaningful from an economic standpoint but it didn't matter because the market was heavily oversold and shorts had their finger nervously on the buy button waiting for any reason to cover and protect protect profits. Ultimatley that rally failed.
The market was showing signs that it wanted to correct as I had stated about 2 weeks ago. When a market wants to correct or rally...it often needs any flimsy excuse to do so.
I was unsure of the exact timing of this latest peak in the market and I felt there was still a possiblity of one last move higher but I did warn about a correction of at least 5-7% was comming. So now that we got it, now what? Notice how once again the downside action was acomplished via a big gap down and flatline type day. This is the second time we've seen this since the market made it's peak in early June. This is still indicative of nervous profit taking behavior similar to what the shorts quite often did last year (with the markets often showing the gap up and flatline type action).
Therefore, I believe we are not about to embark on a new bear market downleg at this time. This is simply a correction in IMO.
Recall how I warned about the NASDAQ/NYSE volume ratio which was showing signs of froth. That ratio plummeted today to 1.43 which is approaching the opposite extreme.
The VIX got a good pop today and the bears are dancing in the streets congratulating themselves.
After today's action I find that the wall of worry is being rebuilt very quickly. I don't believe we will blast off to new highs anytime soon however...there will probably be sideways action for a few weeks.
If this market is going back to bear mode, I doubt it's going to occur so predictably like this. More than likely, we will see several false breakdowns and subsequent sharp rallies to shake off most of the traders who I believe still haven't capitulated from their perma bear mentality.
There will likely be a bounce attempt tommorow morning...be careful though playing bounces because the IT trend has now turned down and so they can fizzle quickly just like the last one did. Don't chase....buy/scale into weakness.
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