There was some hope that the huge move on Tuesday would put an end to the recent market correction but it was just a sizable oversold bounce that failed to correct the technical damage that has been done recently. That bounce was completely wiped out today but a little rally pushed the S&P 500 back to key support right at the 200-day simple move average of 2,768.
This was not a retest of the lows that were hit the prior week under 2,725 but it was a retracement that helps the technical pattern to develop. The overanxious bulls were trapped and were forced to throw in the towel again which is the sort of capitulation that helps the market eventually find support.
Many market players are tempted to buy into the teeth of a decline like this in hopes that they will catch a turn. While that is possible the risk is very high. I believe it is better to wait for positive technical action to start to develop before putting your hard-earned capital to work. The idea isn't to predict a low but to catch the meat of a trend. Stay focused on that task and you will do well.
The market is probably due for another oversold bounce but don't trust bounces that occur within downtrends. Trade them but don't trust them. They are always bigger than you expect and they will want you to believe that the worst is over. Stay skeptical. There will be plenty of time to buy longs after a turn occurs. You can be late to the party and still do very well. In fact that should be the goal.
One positive I noticed today was that despite the broad weakness some stocks are already washed out and are exhibiting relative strength. Small caps have been correcting for far longer than the major indices and many of them are now so washed out they are not sinking further. They will be in good shape for some moves when the overall market finds its footing again.
Stay defensive and keep plenty of cash in reserve.
Have a good evening. I'll see you tomorrow.