Tricky Market

The most notable characteristic of the market today wasn't just the big point loss but the unrelenting nature of the selling. It was steady pressure from the opening bell and the market couldn't manage a bounce in the final minutes. What made it even worse is that the bulls had some good news to work with, namely the GS settlement with the SEC and progress by BP on the oil leak in the Gulf, but the action started off weak and just grew weaker.

The mediocre earnings from GOOG didn't help matters, but the earnings from the banks were the real culprit. In addition to so-so numbers, there was plenty of talk about how the new financial regulations bill passed by the Senate on Thursday may prove to have far higher costs than previously anticipated. In its conference call today BAC said the new rules, particularly on debit cards, may trigger a $10 billion charge. What may be even more worrisome is BAC says that rival banks may have underestimated these costs as well.

A number of other culprits out there share the blame for the poor action -- such as the very poor sentiment surveys -- but some say the biggest problem was that we simply had a bearish technical setup to deal with. The market had bounced straight up on generally light volume and then stopped right around key technical resistance. The market was overbought and ready for some consolidation. Unfortunately, the consolidation turned into some pretty aggressive selling and it's reinforcing the fact that we are still firmly in grips of a downtrend that has lasted for two and a half months now.

The big question is whether this is the fourth failed bounce since the market topped in April or is this just a severe pullback? There isn't much technical support down to the lows of the year but the hundreds earnings reports scheduled for the next two weeks could help to perk up sentiment and help the market find its footing.