Stocks managed a brief, little bounce near the end of the day, but it fizzled out quickly. We did not finish at the lows of the day, but it was very dreary action with no real appetite for bottom fishing, despite the recent carnage.
What was most notable today was the weakness in small caps and secondary stocks. The Russell 2000 ETF (IWM) lost over 2%, which was reflected in a very poor breadth of about 1,600 gainers to 6,600 decliners. The number of new 12-month lows accelerated to over 1,900 names.
The indexes are still above the June lows, but it will be difficult for the market to produce a stronger bounce until there is a retest. We are unlikely to continue to drop in a straight line, but as we saw with the late bounce on Thursday, they will tend to be opportunities to reduce or short until we find some real technical support. Even with such a steady diet of negative news, stocks will see some rebound from intense selling at times simply because traders are always looking for some relief from the pressure.
The bull's best argument right now is that the level of negativity is very high, but there is a disconnect between the mood and the actual level of liquidation that has taken place. There are still a substantial number of bears who are stuck with too much long exposure.
I continue to believe that there is no reason to rush into building longer-term positions. There will be some bounce trades for those with very short time frames, but there is no good reason to expect a bottom and a sustained rally at this point.
Have a good evening. I'll see you tomorrow.
