The bears have been predicting action like this for a while and, as is typically the case, it didn't occur based on any obvious news. There was some general talk about Greece not being able to live up to its deal, and economic slowing in both Europe and China, but none of that is new. The negatives have been out there for a while but for some reason the market decided to worry about them today.
What was most notable about the action was how broad the selling was and how there was very little bounce. The NYSE had more than 10 declining stocks for each advancing one, and all major sectors were hit. Precious metals were probably the worst looking but nothing was spared with retail, banks, steel and oil all suffering. Chips enjoyed a little relative strength but there was no place to hide as all the big-cap momentum stocks were red as well.
The lack of any dip-buying was a major change in character today. We have had a few other mild trend-down days but, typically, when we gap down there is at least some interest in buying weakness. Today we just meandered lower all day and turned up just slightly at the close. Obviously, the dip-buyers aren't feeling as confident that the market will spring back quickly as it has done since mid-December.
After a day like today you have to be mentally ready in the event downside momentum picks up. You can be sure the media will immediately start chattering about how we are due to bounce back at any moment, but the important thing is to be ready in case this is a top and a trend change is occurring. Days like today are how downtrends start. That doesn't mean we are going to go straight down, but we have to watch how bounces play out and see how support holds from here.
The good news is that this is the sort of action that helps create a new supply of opportunities. We need a little back-and-forth action to set up new trades. I always feel more optimistic after a day like this because it should create entries and setups in my favorite stocks.
It is the nature of the market to have corrections periodically and we should celebrate that fact and look for ways to exploit it rather than bemoan the fact that we don't go straight up forever. It was ugly out there today, but that isn't all bad.
Have a good evening. I'll see you tomorrow.
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