The dip-buyers tried to turn things up but did a poor job, so we are back to testing the lows of the day. The most notable thing about the action, aside from the point loss, is its poor breadth. We are running about 8-to-1 negative, but my screens of small-caps and momentum names look much worse.
The smart play has been to anticipate a quick bounce. We have consistently come roaring back just when it looked like a downtrend was developing. Market players are looking more uncertain and show little inclination for dip-buying. If we close near the lows of the day, that would help to cement the fact that a change in market character is occurring.
Despite the poor action we have only given back about two days of gains so far. We have not yet seen a major technical breach of the uptrend lines but there has been deterioration under the surface for a while, and this action serves as confirmation that there are issues that may continue to pressure us.
My advice has been to avoid anticipating a market top and react as it occurs instead. Action like we have now requires a defensive reaction. If you have been riding the trend you may have given back some gains, but you are likely far ahead of the top-callers who have been bearish for weeks and need more downside just to break even.
We knew that the character of the market would eventually change, and now we need to take steps to deal with it and make sure we are ready as a new crop of opportunities develops. The good news is that we've needed a hard shake to provide new entries, and we are seeing one today.
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