It has been a while, but the bears finally managed a decent payday. Despite some seemingly good news from WMT, HPQ and INTC, the market focused instead on a strong dollar and a buildup in oil inventories. Those are the primary justifications for some profit-taking. Of course, the fact that the market has had another V-shaped move and is somewhat overbought is another reason to support the selling.
What is most worrisome about the market lately has been the action under the surface in small-caps and secondary names. The major indices have been boosted and still look pretty healthy, primarily because of bigger names like AMZN and GOOG. If you look deeper, you will see some major technical deterioration in many stocks.
After the run we have had, a one-day correction is something we should be happy to see. The market needs to consolidate and to shake out weak holders before it can attempt another leg up.
What we really have to watch for at this point is a situation where the dip-buyers jump back in but are then trapped in a quick reversal back down. The dip-buyers need to suffer some pain a few times before they will stop jumping in and supporting the market so quickly. They are a very tenacious group, and they have had little reason to fear the dip-buying approach so far.
Overall the S&P 500, DJIA and Nasdaq are still in good shape technically. They bounced too far, too fast in the past couple weeks, so they need to pull back and consolidate a bit. We can probably dip another 2%-3% or so without doing any real technical damage, but if we start to move back below the 50-day simple moving average, which is around 1060 on the S&P 500, then the picture changes quite a bit.....