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Unlike previous instances in 2012, a morning gap down was not immediately bought by eager dip-buyers. Instead, the market has gotten down roughly 1% and stayed down, thus far this morning. It is still early in the session, but we are seeing a slight change of character. The more important issue for traders going forward is whether this morning’s price action represents some kind of sea change, in which we are witnessing a major reversal. One thing to keep in mind is that the S&P 500 Index looks to be simply coming in to test its rising 20-day moving averages, which is just a few points below price now. Moreover, sentiment seems to be awfully quick to turn to cautious with each of these pullbacks, which could be construed as helping the market climb a bullish “wall of worry.”
As the session progresses, I will be watching to see if more individual stocks start to shun the broad market action and move higher from technical setups. The broad market may indeed be taking a rest for a few days, but the sign of a healthy market will be individual issues continuing to press forward. Two ideas that I have been flagging here and inside 12631 are seen below. Both look to be acting well this morning.
On the downside, I am looking to see how the S&P 500 reacts to that 20 day moving average test, which is currently at 1297 and rising.
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