More weakness

S&P500 daily at 12:26 EDT

We continue selling-off after Tuesday’s “breakout”.  It seems fairly safe to call Tuesday’s strength nothing more than a short-squeeze.  Imagine the pain all the bears who were shaken-out as we broke above the consolidation or the bulls who bought the “breakout” are feeling today as the market reversed course.  If there is one overriding truth we can count on is the market’s propensity toward humiliating as many people as it can at any one time.  And more often than not, it crushes and humbles both bears and bulls before finally revealing its hand.

The market testing 1300 as we push toward the lower end of the recent consolidation.  Will we bounce off of the recent lows?  Will we plummet in a cascade of selling?  For those in cash it really doesn’t matter.  In fact, the lower the better because irrational selling creates more upside potential.  But for those trying to play the short side, it helps to have profit targets.

Tomorrow we’ll get the monthly employment report.  Expectations have been dramatically lowered after the last couple misses and the deceleration in hiring we’ve seen in recent results.  Will this trend continue, or will the lowered bar make it easier to surprise to the upside?  While employment numbers were a big driver in 2009 and 2010, they have become less of a market moving data point recently.  No doubt it will make waves, but as long as the number isn’t too shocking in either direction, the effect will be short-lived as the market quickly returns to its obsession over Greece and the Euro zone. But one thing to consider is we are still holding above the lows of the recent consolidation, meaning the current rally attempt is still alive and a strong employment number could trigger a follow through day tomorrow if we have a 1.4% pop on strong volume.

While there are a lot of IBD50 stocks holding up during this correction, the thing to note is the difference in names between this week’s IBD50 and those form March.  Many of the favorite stocks of the Q1 rally have completely fallen off the list.  Often the higher they rise, the harder they fall. Most of IBD’s top groups are defensive, coming from the medical and banking industries.  Are these stocks showing potential as the next big thing, or are they simply hiding places for long-only mutual funds trying to lose the least amount of money in a market correction?

Stay safe