Is This a Change We Can Believe In?

 | Aug 10, 2017 | 4:34 PM EDT
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The market action underwent a major change in character today as the dip buyers disappeared and stocks sold off steadily all day. There was no obvious news triggering the weak start but President Trump helped to accelerate the selling when he stated that maybe his recent comments about dealing with North Korea weren't "tough enough."

Breadth was terrible with about 1,300 gainers to 5,250 decliners. New 12-month lows of 171 easily surpassed new highs of 56 for the first time in a while. Nothing except for gold and a few defensive sectors were left unscathed.

The last few times the market suffered a trend down day like this, it reversed the next day -- on June 27, and more significantly on May 17. Each was followed by a quick bounce. The May 17 selling bar is quite similar to what we have today but that led to six consecutive positive days.

Recently many market players have been growing more convinced that a significant market turn was about to occur. The action today certainly backs up the view that a downtrend of some size may be developing. However, the bulls have been repeatedly saved when the market looks like it is on the brink of a disaster. Corrections have been short-lived and have consistently rewarded the confident bulls.

If this is a real change in character today there are plenty of bulls still poorly positioned that will be seeking an escape.

While downside momentum is a rare phenomenon in recent years, conditions look good for the bears to gain further ground. Even if you aren't convinced that a change in market character is occurring, prudent trading requires that we play defense when things are this ugly.

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

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