The bulls struggled to build on Friday's late-day bounce and finally gave up as the day wound down. Banks were the most obvious weak spot, but breadth finished just a little better than two decliners for each advancer, and there just wasn't much of interest. The most common description of the action today was "dull."
The bad thing about this action today is that we had a decent setup for some upside. We are still oversold, we had the late-day bounce on Friday, and Monday has been the best-performing day for the market over the past year. We didn't have any negative news of note, but the buyers just weren't interested.
What seems to be weighing on the market is increased talk about how the Fed is going to start unwinding the liquidity it has injected into this market. There are lots of very carefully worded comments about how the Fed will do this slowly and in a way not to cause any alarm, but the fact that it is even talking about the possibility of raising rates at some distant point in the future is enough to spook this market.
This market rode up off the March low on a huge wave of liquidity. Liquidity crushed any fundamental argument against the market. All year long, people struggled to reconcile Wall Street with Main Street because they didn't understand that all the funds that were being pumped into the economy were benefiting stocks far more than they were the overall economy.
Market players are now worried about the inverse. When we suck the liquidity out of this market, it may override the positive fundamentals and good earnings news. We will wonder why stocks continue to act poorly even when the news sounds so good.
The story of the market is the story of liquidity, and the Fed is starting to write the next chapter.......
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