Oops

After a steady string of gains, stocks took a plop on Wednesday.

In mid-January, 5-year trend lines were broken signaling the start of a new bear market. Until this long-term damage is repaired, rallies such as the current one are countertrend. This makes them subject to harsh interruptions -- and even quick endings.

It's too early to tell which is now in play. The bears have every imaginable fundamental advantage, but they haven't been able to capitalize on it for weeks. They'll definitely have another shot at it tomorrow.

The 13/34 EMA chart below is one of the classic Bull Market/Bear Market indicators, and it shows the cycle change in January. Until the blue line is back above the red, the market can be a fair-weather friend.






Big volume selloffs like Wednesday's happen in all market climates. Whether the rally is over -- or just taking a break -- is often answered at tests of key support. A trip down to the blue 50-day EMA would be a garden-variety 5% pullback. If that fails, key support is 2250 (a 10% slide). Below that...






Days like Wednesday can be the start of volatility that takes weeks to sort out. Despite its questionable statistical underpinnings, the sell-in-May adage comes to mind as well. How you play a situation like this is determined by your risk tolerance and investment horizon. Regardless of your approach, expect choppy market action.

FYI - no notes on Thursday.

best

dk