Even After Today, Not Much Technical Damage Done....

After weeks of slow, but steady gains, even the bulls have been rooting for some downside. The market finally cooperated, but it wasn't exactly a major meltdown. The DJIA was only down 40 points and the S&P500 six points. The small caps suffered the most and that was reflected in better than two-to-one negative breadth. Volume picked up and produced a technical distribution day, but that was mainly a function of busier trading due to options expiry. If you take a step back and look at the charts, the selling today is just a little red blip and doesn't do anything much to change the overall technical pattern. It wasn't a big dose of volatility, but it was a start. So, now the big question is whether the selling will pick up steam or whether the dip buyers will become aggressive and quickly push us back up? Some folks are looking at the passage of the health-care bill as a possible catalyst for more selling. That makes sense, not because the bill is such a debacle, which I think it is, but because it provides a very convenient excuse for sellers to lock in gains more aggressively. Whether a news event is positive or negative depends to a great extent on the technical condition of the market. This market is extended and vulnerable to more selling, which increases the odds that any major news event will be perceived as a negative. Another news event we have to be on the watch for is a change in interest rates. There was a surprise rate hike in India last night, and there is talk that both China and the Fed are considering some tinkering with rates as well. Any rate hike would be an ideal catalyst for more selling at this juncture. After suggesting tight stops and short time frames as we become more and more extended, it finally paid off today. Disciplined traders should have a lot of cash on hand and be well positioned for the next move in this market.