It has been a while since we have had a trend-down day without at least some last-hour bounce attempt, but that is that is what we had today. Breadth was terrible, with close to 10 losers for every gainer at times on the NYSE. No sector was left untouched expect for precious metals, which regained their safe-harbor designation after being hit last week.
The big question now is whether this is just the inevitable profit-taking that hits after a sharp rally or the beginning of the end of a bear market bounce. Technically, the S&P 500 did take out the uptrend line that connects the lows in early and late March, but we still have support down to 800 or so. If we start breaking below that level and challenge the 50-day simple moving average, which is at 791, then it changes things dramatically. For now, we just have an ugly day of selling, and we planted a few seeds of doubt about the idea that a new bull market is emerging.
What I'm hopeful will develop from this point is that earnings will help us find support and put us in a trading range where individual stock-picking will matter more. The recent run has been dominated primarily by banks and financials with confusing fundamentals and expectations, but earnings reports will hopefully give us a few real winners with some decent charts.
We have IBM and TXN tonight, which will give us some insight into the mood, but aside from financials, we have not had that many strong reactions to earnings. We'll have a much better test when we start seeing how a variety of sectors act.
This rally isn't dead yet, and better opportunities may still lie ahead. A weak day like today had to occur sooner or later and can be very healthy in the bigger scheme of things.
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