Day's like this are why I am still short-term bearish -- or why I believe the current bounce is purely technical rather than fundamental. In addition, for me to change this outlook we need at least two weeks with no news about hedge fund/investment fund problems. Frankly, I would prefer 3-4 weeks at this point.
As detailed below, there was a ton of bad news in hedge fund land today. As a result, traders realized there were still some major problems in the credit markets. Hence the sell-off.
The markets opened lower, rallied for an hour, and then headed lower for the rest of the day. Also note the markets sold-off at the end on heavy volume. This is never a good sign because it indicates traders don't want to keep positions overnight for fear of what news will come out between the close and open.
Here's the 5-day chart. Note that today's action took us to the 61.8% Fibonacci retracement level from the previous three days rally. In other words, today's action took out a lot of the last three days gains.
On the 3-month daily chart, notice the market sold-off to the 200-day SMA. In other words, we're right back to walking the tightrope between bull and bear market right now.
I wanted to reprint the market breadth charts from yesterday. Here are the NY advance decline line and the NY High/Low line. These are not bullish breadth charts.
The NASDAQ breadth charts (advance/decline and high low respectively) are just as negative.
This market is not in good shape. There is a ton of concern about the subprime market. In addition, this concern is leading to a ton of jitters that lead to quick selling pressure in the markets.