If Monday wasn't enough to get folks back to bearish, then Tuesday surely did it.
Maybe it wasn't the action in the S&P 500 that was the breaking point, but the action in the banks. And boy, do folks now hate the banks. One after another folks finally saw how crummy the banks have been. I call that a Realization Day.
The Bank Index is down 6% in two days, nearly 9% since December started, and Tuesday folks finally realized that, "Wait, maybe the banks aren't so hot anymore." They weren't hot a few days, ago either, when I noted the lower-high and how they were on the verge of breaking the uptrend line.
But now there is some support in this 100 area on the Bank Index. I still don't like the banks, but down 9% in a week and just as everyone seems to have discovered their weakness seems to me they are due a short-term bounce. They need a bounce to relieve the gloom that has developed around them.
Then there is beloved energy, which stopped going up in early November, despite all the love for it. Tuesday the Energy Select Sector SPDR Fund (XLE) finally broke down from the small top that had developed. I don't much care for the energy stocks, either, but using the chart of XLE you can see there is support around $83, where I would expect a short-term bounce, as well.
But when banks and energy stocks act so poorly, folks seem to wake up and the complacency that we saw develop last week goes out the window.
I would also ask you don't get sucked into the Industrials story up here. Industrials (using the exchange-traded fund for the group) are up 20% from the lows and are now fan faves, too. I expect the Industrial Select Sector SPDR Fund (XLI) to head lower in the coming weeks, as well. Right now they are being ignored.
I suppose I should also note that 3900 has been support on the S&P several times this year.
But the McClellan Summation Index is rolling over (and if energy and banks are heading down, chances are breadth will weaken further). It won't take much to turn the Summation Index back up (a net differential of positive 1,300 advancers minus decliners on the New York Stock Exchange) but I don't expect we'll see it turn up from here and if it does, it's likely to be short lived.
One reason I believe any rally will be short lived right now is that the number of stocks making new lows is on the rise again. I spent weeks discussing the new highs and how they are contracting, but Tuesday saw new lows begin to expand.
As for the Oscillator you will see it still hasn't pushed to the zero-line, let alone an oversold condition. About the best news I have is that the Daily Sentiment Index (DSI) for Nasdaq is down to 21, so if we bounce and come back down-even if we don't bounce -- it could get to the low teens in a hurry.
Finally, I was interviewed for an NPR podcast called "The Indicator" from Planet Money. I was asked to defend technical analysis. I wasn't given the option to fully explain it, but it's short if you'd like to listen.