After the euphoric move over the last couple days, the market was overbought and ready for some sort of pullback. But routine profit-taking turned into panic selling as worries about European sovereign debt popped up again.
Two weeks ago, we saw an oversold bounce turn into a huge straight up move and now we are looking at the mirror image of that action and wondering if this overbought pullback is going to turn into a complete reversal. This makes for very challenging trading since the movement is all a function of the macro economic news.
We will likely to see another gap tomorrow, one way or the other, on additional news developments out of Europe tonight. It is a coin-flip situation.
The action today was particularly dismal. All the dip-buyers who were hoping and praying for weakness a week ago were too scared to take advantage of the lower prices the market gave them today. We saw a couple minor bounces but the selling pressure remained steady all day. Plus, breadth was terrible and we ended up with a weak close.