Greg Guenthner

Is there a doctor in the house? The S&P 500 and the Dow are bleeding out…

The broad market recorded its biggest post-Fed meeting drop yesterday, with the S&P and Dow each shedding about 1% to close out the day.

Don’t kid yourself—we haven’t seen anything close to capitulation this week.

I told you yesterday that I found it difficult to get aggressively bearish when small-cap and momentum names were working so well. Unfortunately, just writing that thought down cursed the market for the day. I saw plenty of momentum stocks that had ignored every bump in the market over the past month puke up their gains. Small-caps also underperformed, with the Russell giving back about 1.1%.

So now we have a serious losing streak on our hands. The S&P has finished lower 9 of the last 11 trading sessions. Ditto the Dow. We’ve got a nasty two-weeks in the rearview mirror. But that’s not what really worries me…

Despite yesterday’s selloff, we didn’t see much capitulation from investors. Approximately 70% of stocks ended the day lower. Sure, that’s a good chunk of the market. But it’s not enough to call the day a complete washout.

On top of that, more than 250 stocks posted new highs at some point during the day. If we really want to begin looking for a broad market bottom here that could lead to a bounce, I’d like to see a much bigger group of stocks roll over.

To put this current losing streak in perspective, let’s turn to 2011. Similar government-related shenanigans pushed stocks to the brink in July-August 2011. In fact, a losing streak that included 10 of 11 down days in a row produced double-digit losses in the S&P.

Today, we’re still down a measly 3% or so since mid-September. Sure, stocks are leaking lower. But it’s nothing compared to the damage we could see if the market were truly spooked…

Don’t kid yourself—we haven’t seen anything close to capitulation this week. It’s not time to step up and recklessly buy with both hands. Unfortunately, the market is at the mercy of our wonderfully incompetent elected officials right now. They could very well have some more tricks for us that might drum up additional fears and selling pressure. The fourth quarter momentum rally is on pause… for now.

Regards,

Greg Guenthner
for The Daily Reckoning

Ed. Note: When the momentum picks back up, Greg will be right there in front of it. He studies the market movements closely every day and sends his Rude Awakening readers a short, to the point email with everything they need to know about the day ahead. It’s a free service that offers actionable advice and no less than 3 specific opportunities to find hidden profits in the markets. You owe it to yourself to check it out. Sign up for free, right here.

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Greg Guenthner, CMT, is the managing editor of The Rude Awakening. Greg is a member of the Market Technicians Association and holds the Chartered Market Technician designation.

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