The market held up well most of the day but a flurry of selling finally hit in the last hour of trading and we closed weak. Volume was pitiful and there wasn't any big rush for the exits, but some good old-fashioned profit taking finally kicked in and the bears breathed a sigh of relief.
It is refreshing to see that the market is capable of moving in both directions -- at least that is more normal than the lopsided, machine-driven action we've seen lately. If you actually want to trade aggressively a little volatility is a good thing. There are a lot of stocks that will look much better if they rest a little.
I'm sure the top-callers are going to be excited about this weak close, but in the bigger scheme of things, it is more a positive than a negative. A little routine consolidation after a big run like we had yesterday isn't a sign of impending doom. In fact, if this is a top, the likelihood is that we will see plenty of choppy action before there is any significant downside. Markets at their highs simply don't reverse and go straight down. They go through a process of slow disappointment, which eventually results in more aggressive selling, but that underlying support generally doesn't go away quickly or easily.
The best thing that could happen to this market right now is a higher level of volatility that allows profit-takers to exit and stronger buyers to move in. Good buyers are not going to chase, so we need pullbacks to entice them.
Although it is premature to declare a market top, that doesn't mean we might want to tighten up our defenses and protect recent gains just in case the selling pressure starts to build. If you error on the side of protecting gains and keeping your portfolio near highs, you will be in good shape to produce superior returns as the market becomes more volatile. I don't want to predict when this endless uptrend will come to an end, but I'll react quickly when it does.
Have a good evening. I'll see you tomorrow.