There was a little panic wafting in the wind this morning as the majority of stocks gapped down at the open. However, this time there was no rotation into the DJIA to cover up the gross underlying weakness,
The panic was sufficient enough to produce some dip-buying and a decent bounce, but the buyers Tuesday morning were looking for quick flips rather than longer-term investments.
The indices have rolled back over, and now we will see if the early lows will hold. The lows of the day are the key technical level now as that is likely to be where some stop losses will be set. The DJIA has already broken its early lows, but it is positive to see it underperform at this point since it really needs to catch up with the rest of the market to the downside before we can see a better correction.
Breadth is abysmal at a bit better than 4 to 1 negative, but what is most interesting is that new 12-month highs have fallen from over 1,000 to just 50 Tuesday morning. It is highly unusual to see that shift so fast, but it is a function of the crazy rotational action we have seen.
The S&P 500 is testing day lows, as I write, and I'm in no rush to do any bottom fishing. There are definitely some names that I think have been unfairly punished, but that doesn't mean that they can't go lower. I will be looking to do a little nibbling later in the day if we see another leg down.
Don't be too quick to assume the worst is over. There are plenty of trapped longs that are anxious to reduce into strength.