Problems Reman

There was a little panic to start the day, but that set the stage for a long-awaited bounce. Volume was heavy, and the move looked very strong in the morning. We fizzled as we hit overhead resistance at Thursday afternoon's highs.

For a while, it looked like we were going to roll over and drift lower again, but a buy program hit in the last 15 minutes, and we quickly jumped back up near the highs of the day.

While volume was good and breadth better than 2-to-1 positive, it was a rather mediocre bounce. Given how far down we fell over the past two weeks, some sort of relief rally was overdue, but we didn't have the dip-buying frenzy we saw so often during our yearlong rally. That isn't a huge surprise. The damage we've suffered is the most severe since the March, 2009, low.

After the action today, what we have is a bunch of busted charts with numerous red bars in a row, then one positive day. That doesn't make for compelling technical buys. We could bounce some more next week, and the charts may put in a good bottom, but one good day of positive action doesn't mean the market correction is over.

There are two problems now. The first is that a whole slew of buyers these last few weeks are sitting on losses, and they will be looking to escape their poorly timed buys with the least amount of damage, which will provide technical resistance as we try to bounce. The other problem is that the fundamental issues underlying this breakdown are still in play. There has been no clear resolution of the European sovereign-debt crisis. The news there will continue to drive this market. Many market players are tired of the endless government bailouts and rescues; those moves aren't attracting buyers the way they used to. We'll see how things develop, but I believe Europe will continue to weigh on the market for a while.

The good news is that we really have had a solid shakeout over the past two weeks. That sets the stage for a new crop of opportunities in the near term. I don't believe this market will go straight back up again, but the process of finding support and building a base will give us some very good trading during the summer months....