We had a pretty good recovery this afternoon, which was probably due to the bears' hesitancy to press short positions in front of key earnings reports.
Before Friday, the big issue was whether we'd see a "sell the news" reaction to earnings. Now that the GS news is being digested, we are moving back to a focus on earnings. However, we aren't quite as extended, so the "sell the news" danger is somewhat decreased. The IBM earnings tonight and AAPL tomorrow night are going to be very good tests of the market mood.
Although we have had two days of selling, so far, it is still a fairly minor correction in the major indexes. Under the surface, the damage has been much more severe, especially to various small caps; many of them barely bounced back with the market this afternoon. Breadth is certainly much weaker than the indexes indicated.
The dip-buyers aren't showing the level of confidence they did over the past few weeks, but I still am not inclined to believe they are going to give up quickly or easily. Normally, it takes more than just one decent pullback to instill a fear of the bear in the hearts of dip-buyers, but this isn't the same sort of vigorous bounce we've seen recently.
This market was so "technically extended" going into earnings that there was a good chance of some "sell the news" pressure. While we are a little less extended now, the surprise Goldman news probably gives the sellers a little more reason to sell into big moves on good earnings news.