For weeks I have been writing that rather than try to anticipate a market top, we should wait for some weak price action before becoming more bearish. Today, we finally saw some poor action for the first time this year. There wasn't a major point loss, but the S&P 500 and the Russell 2000 suffered their largest pullbacks of 2013 and the market closed very poorly after a gap-up open.
My message for a while now has been that we shouldn't be anticipatory but rather we should react quickly when there is some actual change in conditions. Today things did change and that means we need to adopt a higher level of caution.
I don't want to be too negative as it is just one day of weakness after a big run. However, if you have been riding this trend, it won't hurt to tighten up and protect recent profits. The market may quickly find its footing and continue on its steady ramp higher but it is cheap insurance to be cautious when there have been some warnings signs.
The good news is that the market needs to reset a bit and many stocks will be healthier if they pull back and consolidate. We are a bit too stretched and a good shake would improve trading.
We are seeing some mixed earnings results after the close, with Facebook (FB) under pressure but bouncing very fast on a $0.02 beat. The headwinds are building and our job now is to make sure we don't give back what the market has given us recently.
Have a good evening. I'll see you tomorrow.