No Time for Heroes

 | Sep 22, 2011 | 4:30 PM EDT  | Comments
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The one thing that we have a bull market in is comparisons to the fall of 2008.

Today we saw some of the worst action since the bank crisis. The bulls are trying to dismiss that sort of talk but when the selling is this severe, you have to be at least a little worried.

The point loss was big, volume heavy and breadth very poor, but what is probably the worst statistic is that we had 15 stocks hitting new 52-week highs while 1450 were hitting new lows. The very high level of new lows makes it clear that this is a market that has not been healthy for a while. The vast majority of stocks have been struggling, notwithstanding the big bounce last week, and the action today caused major breaks in what little support there was.

Technically, the S&P 500 barely managed to hold above the closing lows of 1119 but, as I've written a number of times, I believe it is destined to fall and that we won't have a healthier market until that happens. We may be oversold enough for some sort of bounce in the near term, but I believe that today's lows will be breached in the next few days of trading.

This very poor technical action merely reflects the terrible news flow. The uncertainty in Europe is as great as ever, the U.S. economy is showing no signs of improvement and, most important, the Fed has proven to be toothless.

The one positive the bulls can point to is that negativity is extremely high. On the other hand, just because folks are negative doesn't mean they have already sold. It takes a real leap to conclude that the bulls have all been washed out, especially since they were feeling pretty good just two days ago.

We can safely conclude that the market is in a downtrend and is on the brink of making a new 12-month low. Unless you are a hero who is overly anxious to try to call a market turn, it is probably a good time to stay defensive and wait for market conditions to improve.

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

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