The market is undergoing its most severe corrective action since the election in early November. We have had some bouts of weakness previously but they have not been as pronounced as this has been so far today, and there have been consistent bounces in the afternoon and strong closes. If the market does not bounce and close off the intraday lows, it will be a change in market character.
Quite a few folks out there are declaring that today's action is a major market turning point. While the bears have gained an advantage, they have not been capable of generating sustained downside momentum when they do have an edge. So often traders who rush to play defense when we have this sort of action end up quite frustrated when the market bounces back as if nothing has happened.
I mentioned yesterday that I'm rooting for downside simply because it will lead to more trading opportunities. If you are a trader and not a buy-and-hold investor, you should be happy to see some days like this. It can cause some pain if you aren't positioned correctly, but that can be more than offset by the new opportunities that will develop. Already I'm seeing pullbacks in many names that I'd like to add as they find support levels.
The first rule of holes is that when you are in one, you should stop digging. The first rule of corrections is that when you are in one, you should move out of the way. This isn't a full-fledged correction at this point, but there are good odds that we will have a deeper pullback. Make sure you play stout defense so that you can play very strong offense as new opportunities develop.
The close today will be of particular interest. We have not seen a downtrend day since Dec. 28 and we haven't had a 1% pullback since Oct. 11. The bad news is that if you are holding longs, you are taking some hits. The good news is that the flat, boring action has shifted and new setups will develop.