On the 64th anniversary of D-Day (6/6/08), the markets were hit by an invasion of sellers that rolled over the spring bounce and caused a 400-point dive. I think that was the advance guard of a change in market conditions that will, unfortunately, persist in the near future.
 
A review of the D-Day action: the Dow and S&P lost 3.1%, the NASD 3.0%. In the NYSE, some of the largest regiments took the hardest hits. The biggest loser was Financials (25.38% of the NYSE), with a 4.7% drop. Consumer cyclicals (16.0% of NYSE) were off 4.2% and Industrials (16.79% of NYSE) off 3.5%. With all this damage, it's no surprise the markets lost traction.
 
The OTC fared a little better, showing declines less steep than the broad indices. Its largest sector, technology, was down 2.7%. This may be some consolation for OTC investors, since they have been enjoying all the upside of the recent market bounce.
 
What does it all mean for the future? I've been saying for some time that this market is a traders' market and volatility is here to stay. Far from being the result of a Sybil-like trance, these predictions come from examining the most recent recessionary, slow economic market: 2001. That climate was categorized by dramatic swings that made investors yank out their hair while only the most nimble traders profited.
 
The spring rally from the January-to-March bottom line was phase one-caused by the resilient optimism which looks forward to the economic turning of the tide.
 
After sifting through the technical wreckage and watching trading the last few days, the safest conclusion to reach is that last Friday's carnage signaled only the start of phase two, as investor optimism turns back to pessimism, with high-flying commodities prices taking their biggest toll yet.  Memories remain short, and the cry goes out- "oh no, is the economy ever going to emerge?"  Kerplunk. A market drop.
 
Broad-based selling has hit virtually every market sector, bringing the New York Stock Exchange Bullish Percentage to the edge of ‘defense mode.' It's likely to reverse down, suggesting there is still time to bring the defense out on the field. The spring rally is over and the summer is going to be very muggy.
 
The market will eventually go overboard in pricing in some terrible economic outcome; at that point, traders will have yet another chance to leap in.  For now, however, be careful and don't jump the gun. Better buy points are coming; in fact, it's still not a bad time to be raising cash instead of deploying it.

www.deltaga.com