The dip-buyers don't have much juice so far this morning and have been quickly turned back twice as we make new intraday lows. Breadth is poor at around four losers for each gainer, and all major sectors are red. Oil, banks and retail are all being hit pretty hard.
We have been due for a correction for a while, and the poor European news flow is providing a catalyst. We have been able to ignore the eurozone for a while but there was no way it was going to go away for good with so many unresolved issues still out there.
So how deep of a correction will we see? Unfortunately these low-volume V-shaped moves don't give us much underlying support, so when the dip-buying dries up, we can fall very fast, as there is no technical buying to shore things up. The obvious level to watch is the gap that was created on the first day of trading in 2012, which is around 1260-1266 of the S&P 500. We also have some minor support at 1295 and 1280, but it is that 200-day simple moving average that will turn a correction into a very nasty downtrend.
I've been taking some stops this morning and playing defense, but I continue to keep a close watch on the Facebook sympathy plays such as Renren (RENN), Quepasa (QPSA), GSV Capital (GSVC) and Zynga (ZNGA). I don't think that story is over yet, and I'm actively trading them and waiting for opportunities to arise.
So far it's looking like a trend-down day -- stay out of the way and be careful about bottom-fishing. The dip-buyers are standing aside and there just isn't much support out there.