The carnage continued yet again on Monday, spilling over from Friday’s sharp decline. If you turned on the TV, you would have thought stocks are down double digits and in free fall the way the pundits are talking about this little decline. But you know better. Since the first of the year when the market started losing the positive calendar tailwind, I have been discussing a scenario for a routine and healthy bull market pullback of 5-10%. That’s where we are today.
Apple’s somewhat rotten earnings are the headline of the day, but that shouldn’t be a long-term drag. There are other, more important macro concerns at this point. Yesterday, I wrote about the likelihood of a very short-term bounce developing in the stock market, but the bulls are not making it easy. After declines like we have seen over the past few sessions, it is typical to see either a washout where stocks open sharply lower and then firm throughout the day or s snap back where stocks higher and continue higher all day. We have not seen either set up yet.
The possibility for a Turnaround Tuesday exists today although the Dow and S&P are not tipping their hand as we approach the open. The bulls are supposed to make a little stand today. With bonds weakening yesterday during the decline, that is another clue for some attempted firmness today. I would become more concerned if we see rallies fail during the day and the major indices close at their lows.