Although the most likely cause of the market weakness today was locking in gains, there was also a downgrade of debt issued by Greece and Portugal, and the GS hearing, which aired most of the day, did not help the mood. It seemed like the vast majority of market players were shaking their heads in disgust and making disparaging comments about the thrust of this hearing.
Many of the senators seemed to have limited knowledge about how a market for complex instruments operates and were more interested in trying to paint a negative image than in really understanding what happened. They acted appalled at the idea that Goldman wasn't 100% sure what was going to happen to housing a few years ago and that it even made bets that prices might fall. Traders who traded! How shocking! Actually, I don't think the politicians really are that dumb -- they just are being intentionally obtuse as they pander to voters and demonize Wall Street....Maybe (they are that stupid).
The Goldman hearing is just a sideshow, but it is important in that it makes it clear that the politicians want to find some villains, and the witch hunt is likely to go beyond just Goldman and will have some impact longer term. It isn't going to be easy to trade, but it is something we need to be aware of.
Technically it was a clear day of distribution and the worst selling since this rally began back in early February. It isn't necessary the end of the recent uptrend, but it could be the start of the topping process. It is the second big red distribution bar in the last two weeks, and that is a warning sign of some institutional selling pressure.
Tops are usually a process that take some time to play out. We'll usually have a few bounce attempts before we really roll over and start to trend. What we have to do now is watch how we act on a bounce and whether the dip-buyers stay aggressive. If the dip-buyers are finally starting to feel fearful and not rushing to buy every little pullback, that is going to be a major change in market character.