A late bounce took the indices off their intraday lows, but it was a bloody day for the bulls as big-cap names started to catch up to the downside with struggling small-caps.
Even with the bounce, breadth was horrendous with about 1,500 gainers to around 5,650 decliners. New 12-month lows ballooned to 550 while 12-month highs fell to 75. The Innovator IBD 50 ETF (FFTY) , which is a measure of momentum stocks, was down 2.7%
These are bear market-type stats, although the DJIA and S&P 500 are still extremely close to their all-time highs. Many stocks are already deep into a correction, while the DJIA has been doing a great job of covering it up. While the DJIA and S&P 500 are still well above their 50-day simple moving averages not even half of the stocks in the market are over their 200-day simple moving average.
There is no mystery about the catalyst for the poor action Thursday. Bond yields hit multi-year highs as bonds suffered significant technical damage. Until Wednesday the market has consistently shrugged off occasional spikes in interest rates but the narrative taking hold now is that the day of reckoning is finally upon us.
Still, the bears have a tendency to become over-excited when we have a bad day or two. They have been anticipating a turn for so long that they can't help but celebrate that they are finally right. However, the pattern has been that it turns out just to be some routine selling rather than the "big one" that they keep predicting.
There is no question that there has been some technical damage done and the bears have some momentum. Building on that advantage is always the bears downfall, though.
As I discussed in my prior post, there is little choice but to play defense when faced with action like this but the bears need to show the ability to produce some follow-through to the downside before we declare the bulls dead.
Have a good evening. I'll see you tomorrow.