Just after 3pm on Tuesday, the “Buy the Dip” and “Everything is bullish” crowd got a bit of a reality check as a swift decline struck across the indices. In a market that’s volume fueled (or powered by big institutions), a lack of volume can only take things so far before weaknesses start to reveal themselves. From the start of June, overall volume has been on a steady decline… that is until today (or this afternoon to be exact) when it rose +12%. If the markets are indeed “spooked” by Thursday’s testimony or Draghi or whatever, then what you’re seeing now are the retail investors running for the exits because they are generally the last to know.
Signs of institutional distribution were already in place last week as a lot of the big boys cashed in their SPY 240 breakout profits, leaving retail investors (not only the last to know, but also the first to be fooled) to start piling in… because when you’re in a market that “only goes up,” you can’t get in soon enough. As market internals gain downward momentum, indices will follow, but an across-the-board accumulation day at this point can still tip the scale the other way. Until that happens, though, more and more reality checks are likely to kick in. -MD
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