Today's failure by equities to hold the early gains injected by lower petroleum prices has to have bears drooling. I know I wiped drivel off my desk several times today. In fact, I found the morning buying spree... up one percent or so... to be rather weak considering oil was down $8 at the time, so I increased my short position less than a half hour into the session. The early gain simply felt like the fulfillment of an obligation by equities to rally on lower oil. After the obligation was satisfied, they could go where they really wanted to go: down. I don't know a better way to explain it.
Take a look at this failed rally and tell me it doesn't look like the next bear leg just got kicked off:
Now the volume there is the kicker. In last week's post, Call Me Skeptical, I explained why I didn't believe the August 25th sell-off was the start of the "big one." Volume was apathetic. Today, we saw a sharp increase in volume along with a rally failure on good news. As everyone knows, the news itself is not important, but rather how the market reacts to news. Given the high-volume failed rally in the face of good news, I am very tempted to put my stamp of approval on the market for an aggressively bearish stance.
There is one aspect of today's session that is holding me back. The Banking Index rattled off a 3% gain.
The index is getting a bit stretched on short-term RSI, so it will be interesting to see if 75 can be reached at all. Nevertheless, I am holding back on getting aggressively short until I see the banks weaken.