A Little Relief but Not Much Repair

 | Feb 26, 2013 | 4:24 PM EST
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After the worst day of the year on Monday, the market managed to bounce back a little. That calmed some nerves but did little to repair the damage that has been done recently. It would have been more surprising if we didn't have a little relief bounce after the intense selling pressure into the close on Monday afternoon.

Of course, plenty of bulls are happy to proclaim that the correction is now over and that it is clear sailing from here, but there was nothing in the action today to justify that view. We had OK volume, and breadth was decent at 3,500 gainers to 2,000 losers, but it was just standard dead-cat action, and there were few signs of a rush to reload longs. The Dow looked better than the Russell 2000 (IWM), but the IWM is probably a better indicator of broader market sentiment.

As I said last night, my view is that the market is now undergoing a correction. That doesn't mean we go straight down, but it does mean we can't trust strength like we had today to last very long. In an uptrend, you buy the dips. In a correction, you sell strength.

I don't want to sound too negative, because the good news is that correction action will give us setups and buying opportunities. You just have to be patient and not jump to the conclusion that a one-day bounce means that the worst is over. When the market is downtrending, the bounces will try to make you believe that the bottom is in. We need more proof than a day like today to change our market bias.

Probably the best thing you can do at this point is work on shopping lists so that you can track some names as this correction plays out. There is no big rush to buy, but we always need to be mentally prepared to move as conditions develop.

Have a good evening. I'll see you tomorrow.

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