Stocks Fall in Heavy Volume as Fear Continues Mount about Sovereign Debt

The global sell-off began in China and sent ripples throughout the entire market.  Two acronyms caused issues today the “ECB” and “LEI.”  Sellers took to the market and did not leave any stones unturned hitting just about every stock.  We’ve been preaching cash for quite some time and once again it proved to be a great place to be.  While stocks finished off the lows of the session the damage has been done and cash still remains king.

A new indicator LEI, implemented in May was revised lower shocking an already fragile market in China.  The fear in China is a slow down in growth and any indication this may be true has traders on edge.  This fear carried forward into the Chinese ADRs listed on US exchanges.  Many saw big volume selling in sympathy with the Shanghai “surprise.”  Breaking support on big volume is not something you want to see in any stock, but one Chinese ADR was a big stock leader and with it breaking support today shows just how fragile this market is.

The lone silver lining may have been the ability for the S&P 500 to recapture the 1040 level.  We had a running joke in the chat room regarding this level as a CNBC guest had said we weren’t going to close below this level for the remainder of the year.  As the market took out the 1040 trigger stops as well as short orders the market was able to find a bit of support and close above that key level.  Normally, the rule of 3 would apply and we should have just cratered.  There is always tomorrow for that.  At any rate, the market remains in dangerous territory and if we fail to see any upside momentum this market will find itself lower before we move higher.

Wednesday we wrap up the quarter end, the worse quarter since 2009.  It should come to no surprise since the March lows we raced from 666 all the way to the recent high of 1219.18.  It should come to no surprise we are in correction mode.  At today’s low the S&P 500 correction hit 15% from the April highs.  Normal corrections can last anywhere between 12-15% during big bull market phases, but for now we are simply in a corrective market that appears to be hungry for more lows.  A big upside reversal coupled with massive accumulation is the only thing that can save this market.

For now, cash remains king and waiting for a better market is the best game plan.  Another weak volume rally would more than likely usher in better short setups.  In the meantime, cash is king!