Blood bath yesterday

Needless to say a wrap up of the internals were ugly yesterday. Cumulative ticks finished at -90,000 (the graph looked like a slippery dip), breadth both finished at extremely bearish levels on the NYSE and Nas (sub 2000 and 1800 respectively) and up volume/down volume was 20:1 negative on the NYSE and 10:1 on the Nas. SPY volume finished 40% above the 30 day median average so very heavy.

Last nights price action leaves us back below the down trend line on the daily chart which was broken for a brief moment (a day and a half). Again where does that leave us? Well the tape action would suggest that we are indeed in the early stages of forming a rounded top. The fact that price has struggled to regain the strong bullish trend we've had for the last 2 years is suggestive of that. Note that we had two up gaps that did not fill which is normally a very bullish setup for the intermediate term. However last night we did manage to fill the previous day's gap (this has only happened 25% of the time (unfilled gap filling the next day) according to Scott from masterthegap.com). If the market was undervalued we would have expected the bulls to show up and hold that gap. The fact that we didn't even get a whimper tells you something. In fact this has been my tone of my posts for the last few weeks. Something just isn't the same anymore with the market. Bounces have been weak and that is telling.
In the short to medium term I would expect range trading strategies to work best. Interestingly, one observation from yesterdays action was that the dollar tanked ALONG with equities. This has not been the norm of recent years and would indicate that the market is now pricing in fundamental weakness in U.S. growth and possibly further stimulus from QE3 or similar as the Euro, oil and gold all held steady on the session. Bonds absolutely rocketed which is not a sign of a market that is worried about inflation or growth. Note that the bond market has for the last 6 weeks been trending steadily higher. I always regard the bond market as something of a leading indicator as I regard bond investors to be more astute than the masses that typically trade equities (more retail than institution).

The market remains very news driven at this point so stay nimble.