It's a classic failed bounce and an ugly intraday reversal, the biggest since last year. It's the sort of action I would expect from an oversold bounce after the market rolls over.
Action like this confirms my "topping process" thesis, especially since we have not seen selling pick up to this degree in a while. It's obvious that market players saw the early strength as an opportunity to cut long exposure and that is what they are doing.
Particularly worrisome is that small-caps are leading to the downside. The small speculative names have been leading this market for a while, and when we start seeing a rotation into "safer" sectors, it's a sign of a change in market character.
I plan to keep stops tight and to focus more on the short side. I'm not interested in bottom-fishing yet. It's too early in the rollover process, and even if there is a bounce, the likelihood of further rollovers is increasing.
It is time to play defense.