After a counter-trend, low volume rally, the S&P 500 (SPY 144.69 intraday) today gapped down across a short term uptrend line, and showed several signs of a resumption of the decline:
1. Gap down.
2. Higher volume (so far intraday (3 pm)) on this down day than on the prior up days.
3. Wide-ranging day;
4. Holding (for now at least) near the lows of the day.
5. Violation of the lows of not just the past 3 days but apparently the past 4 (Vic Sperandeo's 3 day rule).
If the market does not turn around and take out the relative high made yesterday, it will have stalled out at the intermediate term downtrend line as would be expected. A retest of the recent lows is likely.
The news from the housing market continues to be bad. The news out of Iraq is beyond horrible and the fact that the scandal-ridden AG is resigning sets us up for a nasty confirmation fight which may paralyze our government or even create a Constitutional crisis. Many of the illegal activities of the President were not investigated or aggressively pursued because of Gonzales' loyalty to his boss, but you can bet whoever is confirmed to replace him will attempt to re-establish the rule of law, or at least not to stand in the way of Congress, which seems intent on demanding accountability on a host of abuse of power issues from illegal wire-tapping to the firing of the US attorneys for political reasons.
Whether the market is starting to discount some of this nastiness or not is unclear. Expect also the dollar to continue to get pressured since the Fed is lowering rates to cover subprime lenders at a time when the ECB is talking of raising rates!
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