Thursday, May 18, 2006

The Elusive Bottom

Stocks sold off hard in the last hour of trading. I heard a lot of people scrambling to come up with reasons why, but the truth is that no new news hit the tape late in the day. So it was just additional selling pressure that hasn't been fully worked off yet. It also could have been exacerbated by options expiration tommorrow.

Breadth was again negative, and the markets are that much more oversold as a result. But measures of investor anxiety spiked again today, which I think is helping to build what will be a tradable bottom.

Volume was not as heavy today, so we avoided another distribution day. Small caps sold off the most (-1.0%), with the SPX falling -0.7%. In terms of sectors, biotechs were hit hardest (-2.1%) while retailers (+0.9%) and homebuilders (+0.1%) were actually up on the day.

Market bottoms are painful processes, but they are a normal occurrance in the market. It is what it is. With the Nasdaq and Russell 2000 now down more than 8% from their highs, this has been a quick and powerful correction.


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