It had to happen sooner or later and today was the day. For only the second time this year, the S&P 500 dropped more than 1%. The last time that happened, on Feb. 4, the market gapped up the next morning and then continued the slow and steady uptrend. Is it different this time? Are we finally seeing the long-awaited topping process? Are the bears finally going to see the downside they have been warning about since the gap up to start the year?
As I've said many times, let the price action be our guide -- and the price action today certainly warrants caution. What was particularly problematic was that the selling actually accelerated into the close, which is something that we have not seen in a long while. If some downside follows through, it will definitely be a major change in market character.
A slew of bearish arguments lately have been totally ignored, but the market decided that the Fed minutes and comments about how QE can't continue forever would be a good excuse for selling. The QE program has driven this market more than anything has the last few years, so it makes sense that worries about its potential demise would trigger selling.
The bears have the edge and we'll see what they can do with it. I'm changing my market bias from "uptrend" to "topping." I don't expect the market to go straight down from here, but I'll be looking for more selling pressure in the near term.
I've been rooting for a market shakeup lately but as the old saying goes, "Be careful what you wish for because you just might get it."
Have a good evening. I'll see you tomorrow.