For the second day in a row, the indices covered up some very poor action under the surface. Unlike yesterday, the major indices actually finished in the red but did come close to reflecting the extent of the selling that took place. The key leadership stocks continued to act poorly, with names like BIDU, FFIV and LVS acting particularly poorly.
Breadth wasn't all that bad, especially on the Nasdaq, and volume wasn't very heavy, but by the end of the day, only biotechnology and pharmaceuticals were showing any gains. The pockets of momentum that have made for some good trading lately have disappeared, and there were no clear bullish themes to be found. We have some random upside movers but nothing that looks like emerging leadership so far.
This market has been running on slowing momentum for a while and it was only a matter of time before we finally corrected a bit. That is what is happening now. As far as corrections go, this one is pretty mild so far, but we don't want to be too quick to assume that it is over with. Plenty of stocks still have some major air pockets under them and could see some momentum pick up to the downside if the bulls don't go back to work soon.
The bulls are still in good position and could recover quickly, but the action under the surface of the market is problematic.