Momentum Cuts Both Ways

We all know that saying is true, but it sure doesn't help if you're on the wrong side of this market right now:

Over the past four trading days we’ve given up all of October’s gains and then some, breaking the 50 day moving average in the S&P 500 today. We are also currently as oversold as we’ve been since the rally from the lows began. As I commented this morning, failure to rally from oversold conditions would certainly help convince many that the highs are in and the rally is finished even though I think we should keep an open mind.

After being away from the fray, from my perspective it was a bit surprising and disappointing to see the bulls unable or unwilling to circle the wagons and defend their positions out there today. This leaves me to assume that traders still had to exit out of bull-trapped positions (probably established over the past two months as people gave up on waiting for oversold conditions for entries) and were still in the puking stage as stops were triggered in the weakness. In addition, the relative underperformance especially in the small caps continues to raise concern as they were unable to set a “higher low” in the pullback as we’ve seen before.

Read more of my after-hours report.