Chalk up today's action in the predictable column. Stocks followed through, as expected, to the downside. The SPX coughed up 1.6% while the NDX shed 2.2%. Volume picked up considerably on both indexes, confirming that further weakness is in our sights.
Now is the time for the market to show its mettle. If we are to eventually see the greater rally into election season, today's thrust lower should be followed by choppier, less impulsive downside action with support being found in the vicinity of the 65DMA. If, however, we see another day or two of serious selling pressure which busts support levels, one would have to raise expectations that a second major leg down is underway in a bear market. For the moment, I favor the former scenario, but I am still short the SPX.
Headlines are blaming this week's equity weakness on oil's surge (oil was $5 higher today, poor Tim). This notion is absurd given that the market was chugging along just fine as oil surged 30% since March. However, oil did impact mining shares:
This left a nasty looking candle on the GDX chart and gives us pretty good odds of back-testing the down trend line. I'd really like to see these shares turn higher again without making it down to the down trend line. Such action would be a great sign of strength. We'll just have to wait and see. As for the metals themselves, I'm watching them closely. Previous corrective periods have seen many false starts while price wound its way slowly downward. Has the last week represented a false start or a new surge? Opinions are welcome.