The Big Picture Demands Caution

 | Apr 10, 2012 | 4:29 PM EDT
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Downside momentum has been a rare occurrence in this market for a while, but we were kicked in the teeth by some today. Typically, the dip-buyers are ready to go after a weak day like Monday, but this morning they found themselves trapped when an early bounce attempt fizzled quickly. The rest of the day was spent looking for an escape and the fact that bids dried up and volume increased didn't help matters.

What really cemented the downside action is that the big-cap names like Apple (AAPL), Priceline (PCLN), MasterCard (MA) and the like that have been showing such strong relative strength lately rolled over and turned red. Those stocks have been safe-havens, and a little weakness there helped kill the small amount of positive sentiment that remained.

The big issue now is whether this is the start of a longer-lasting downtrend or a quick-and-dirty correction that will clear the air for a solid rebound. We are definitely oversold enough that a bounce of some sort is likely, but it is going to be surprising if the bulls can pull off another one of those V-shaped bounces that have served them so well the last few years.

The easiest way to find yourself in trouble in a market like this is to be too quick to embrace the idea that the damage will be quickly repaired. While we may try to play some oversold bounces, we shouldn't be ready for them to fail and for some retests of the lows to occur.

The bottom line is that the market has suffered some technical damage and has seen some downside momentum build. We are in danger of a more severe downtrend, and that demands that we give the bears some respect for a change. Earnings season may shake things up, but the big picture has shifted and that demands caution.

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


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