The selloff continued yesterday with another session of large losses. The major averages opened lower and it was all downhill from there. The COMPQ was lower by 2.43% while the SPX fell 2.10%. All the major averages closed at their intraday trading lows, a negative sign, showing that the selling lasted all day and was not met with any buying interest. Volume was higher across the board and above average on both exchanges. This shows that large institutional players were selling stocks heavily. Leading stocks were hit as well with the leaders index falling 2.41% on the day. The index closed at its lows of the day and moved further below its 17dma now resistance level. Volume on the leaders index was higher and just below average. This shows distribution in quality growth stocks as well as the major averages. The market picture is looking bleak right now as the major averages and leading stocks are selling off. The eight percent level is critically important in market corrections. 75% of corrections hold at this level and are thus relatively minor corrections. When a major average goes past this level the chances of a full blown intermediate correction of between 12% and 15% increases dramatically. The COMPQ is 8.44% below its recent high while the SPX is 9.91% below its high. The charts of the major averages continue to worsen. The SPX is sitting right on its 200dma while the NYA, the broadest measure of New York stocks, broke below its 200dma yesterday. With yesterday’s decline the chances of this becoming an real intermediate term correction are pretty high. If this happens the next question becomes will it continue lower and become a bear market. It is too early to say if this will happen, as you usually don’t know you are in a bear market until it is well under way. We may well be in a bear right now that will show itself over the coming weeks and months. Important market tops are a process that plays out over a period of months. The market is reacting to news right now and is oversold, so a rally could come at any time. The strength of that bounce should tell us a lot about whether the worst is over or not. If we are in a bear the oversold position means little. In the early phases of a bear market the major averages will become oversold and continue lower, just as in the early phases of a bull market the major averages become overbought and continue higher. One thing is certain, this is no time to be brave. Jerry
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