Stocks Not Bouncing Yet, Despite Oversold Condition

The market experienced a nasty selloff yesterday, with most of the major indexes down by more than 3% on the day. Moreover, downside volume on the NYSE totalled 93%, so selling pressure was strong. But overall volume did not rise materially, helping the market avoid a major distribution day.

Considering the big downside volume figure, it appear that it was as much a "buyers strike" as anything. That is, there were few large buyers willing to step up and buy stock, while sellers were locking in profits from earlier in the rally, or cutting losses on newly entered positions that have quickly rolled over.

This morning, the market was slightly higher at the open, but right now the indexes have faded into negative territory. The market is now pretty oversold, so a bounce would seem normal.

The existing home sales report this morning showed home sales for May rose +2.4% month-over-month, which was slightly below forecasts. Also, due to the high number of foreclosure sales, median home prices sank -16.8% vs. last May.

Asian markets were also down sharply overnight; the dollar is lower this morning, helping commodities; the 10-year yield is lower to 3.65%; and the VIX is roughly flat at 31.20.

Trading comment: My daytrades yesterday didn't work out great, but it wasn't all bad. Actually, I let a couple of the positions ride into today. There is an old adage on Wall St. not to let a bad trade turn into an investment. While I don't want to violate that rule, I bought some GS and FCX, and just want to give the positions a little more wiggle room as I do expect some sort of bounce.

The SPX has broken below the 900 level, and many traders are now back to talking about the SPX 875 level as offering the next area of support. The SPX is already down -7% in less than 2 weeks, which is a pretty sharp pullback. It looks like right now, investors are more concerned with locking in profits they have. I still expect some window dressing into quarter end, but that may be an even that doesn't start until after the Fed meets this week.

long GS, FCX