Sell in Spring and Do Your Thang

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We saw a sizable (for 2012) gap down this morning in the market, and since then we have essentially been consolidating the initial plunge. The 1400 level on the S&P 500, which served as short-term resistance last week, is currently being negotiated as I write this. The financials are showing remarkable strength in the face of this move, and plenty of other sectors, such as the IYR, are barely down. The high beta cyclicals, energy, materials, and transports are the clear laggards so far. I had been looking for a rotation from some of the more extended stocks and sectors down to those setting up behind them, but I am probing that thesis right now more than forcing it.

The dip-buyers have consistently showed up in 2012, taking only a few days off, if that. It will be interesting to see as the session progresses if they are too fatigued to keep stepping in. The Russell 2000 small cap-led index attempted a major breakout yesterday, and is now back inside its consolidation range. While not inherently bearish, that type of action does smack of needing more time before making a real move. Of course, the bears are going to try and press for a fast move lower here, but those pesky dip-buyers are not likely to just suddenly vanish.

On this first day of spring, the bears are attempting to change the character of this market along with the seasons. I am watching the 1400 level on the S&P 500 first and foremost as a battleground. If we lose that, then I expect 1390 to be tested, as support from last week, after which I would be looking at a test of the rising 20-day moving average, currently just above 1375.

There seems to be a good deal of discussion about whether the market is topping or just getting started. Looking out over the next few weeks, I am more focused on whether this rotation thesis continues to play out. Given the lack of chatter about that, I am even more honed in on that scenario.