2 Shit Days In A Row....

We had some fairly unusual downside follow-through today. The dip-buyers did jump in after the weak open and took us back to about flat, but they never really gained much energy. Breadth was poor all day and finished at around 3 to 1 negative. Oil tried to bounce and fizzled, and retailers faded after a strong start.

Once again, the dollar was very strong against the euro, and that kept pressure on commodities and basic materials. That is a function of the European sovereign debt issues, and there doesn't seem to be any fast or easy solution to that problem on the horizon.

The inability to bounce better today may suggest that there is more downside to come. The longer that market players struggle to recoup recent losses, the greater will be their inclination to sell into a relief bounce. When stocks cause you stress and anxiety as they have for a couple of days now, the desire grows to dump them when you have a chance.

However, I don't want to be too quick to completely write off the bulls here. If you look back at the many V-shaped bounces we have had over the past year, you will often see some downside or flat action following a big distribution day before the big turn kicks in.

The bear argument is that this time the fundamental conditions are different and that this time the V-shaped bounce just isn't going to come easily. According to the charts, that does look like the way to bet, but it was the way to bet numerous times in the past year, and it proved to be a loser.

Even if you are optimistic about the ability of the market to recover from this spate of selling, it is still prudent to make sure you are playing very tight defense. There is a fairly high level of risk that this is just the start of a major change in market character. Thus it is more important to focus on capital preservation rather than adding long exposure.....