Flushing Lower

The market futures were down early in the evening on Sunday, only to recover nicely by the morning. It seemed as though the market was about to dodge another nasty move lower, but that wasn't the case at all as the futures dove, once again, before the market opened, cresting a decent gap lower by a little over a ten handle on the S&P 500. That was the good news for the bulls. The market slowly, but very gradually, began to weaken after the usual few attempts higher by the retail bulls. Once the bears recognized they had things their way it didn't take long for them to pounce on the wounded animal, and create lower prices that took the S&P 500 below first good support at 1909. A very happy day for the bears when all was said and done, although we are oversold. That oversold condition can remain that way if the bears are in full control. It always bounces, but there is no real bottoming stick, yet, that says we're in for a decent bounce that will unwind the oversold state of things.

Nothing sustainable seems in the cards just for the bulls. It's hard to know what all this action means in terms of whether this is still just a correction that will allows normal retests of the bull market highs, or at least, close to them, or whether the bears are in full force. If that's the case, we won't be seeing anything near 2134 for quite some time to come. Longer than any of you would care to believe. A strong close below 1867, and then a failed retest would tell us things are far worse than we could have thought so quickly, because, again, it's rare for bull markets to end with such a whimper, but that could be the message we're getting. Only time will tell. Today was a clear-knockout blow for the bears, but bigger picture, we watch how S&P 500 1867 gets handled, and then we'll have more knowledge in terms of what market we are dealing with.

We saw the big leaders, the stocks holding up best, take some real hits today and in many ways that's a good thing. You need to see the best froth stocks start to give way to finally have some type of bottom. On the other hand, it could mean that the selling is such that a bear is what's in control. In all major down trends, whether a correction or a bear, you need to see the biggest froth names take hits. We saw that today, once again, across the biotech world and in stocks, such as Facebook, Inc. (FB) and Amazon.com Inc. (AMZN), to name just a couple. These stocks have been living a very frothed out charmed life for way too long, so it’s no shock that they're finally getting smoked in a very big way.

It tells you to stay clear from them for now, and don't be a hero, but do what you want, of course. The fall in these stocks, as you saw today, can be off the charts. It can make you stare in disbelief to some degree. Weeks and months of fractured gains taken out in days. Best to focus, if you must be long, on low P/E stocks that have real businesses, meaning they make money. No P/E or high P/E equates to pain for now, so be smart in how you choose. Loads of cash is a good thing. Everything has a time and place, thus, trying to catch hard falling stocks can be hazardous to your wallet. Slow and easy here.

Pessimism is sky rocketing now. Even Icahn wants protection. The biggest bulls are turning sour. Thjs can only help the bulls get themselves a huge rally at some point. The market has record, short interest and a bull-bear probably approaching, if you include today, -10% on the spread. That's to be respected. A lethal combination when the right catalyst for a rally hits. Pessimism alone can cause huge rallies, but fundamentals are in control bigger picture, so be careful playing just on pessimism alone. Get the right candle stick and good news, and then participate a bit. For now, go very slow on your trading. Don't try to catch the exact bottom. Day to day for now.