A 42-point pullback in the DJIA looks quite mild, but it was the action under the surface things that was worrisome. Breadth was solidly negative, with about 1,370 gainers to 4,325 decliners. All major sectors finished in the red, with oil and commodity-related stocks being the biggest laggards due to strength in the dollar.
There was a mild bounce attempt late in the day, but the bulls never really gained much traction. We finished off the lows, but it wasn't a very convincing flourish of buying to end the day. I suspect there was some nervousness about RIMM's earnings tonight, and that may have been well justified, as the stock is down 8 points or so after a slight top-line miss and a minor EPS beat.
Since March, the pattern of this market has been to come back very quickly just when we looked like we were on the verge of a major technical breakdown. That catches folks by surprise, and we end up with extremely strong moves straight back up. I'm sure many folks are looking for this to occur again, but as I keep writing, the tipoff will be the strength of the bounce. The bounce this afternoon was not very strong, but overall, the pullback from the highs is still fairly minor.
There is no question that a higher level of defensiveness is now warranted, but we don't yet have a major change in trend. The bulls can afford to let things slip a bit more, but watch what happens on the bounce attempts. The dip-buyers are the key to the market, and when they weaken, the downtrend will pick up momentum....