Yesterday stocks yo-yoed as European news items poured in from every capital with buyers responding to one and then sellers to another. At one point the Dow lost 100 points following a news item suggesting that Austria’s parliament had voted down a bailout fund for Europe. It turned out that the parliament had merely postponed a meeting to discuss the bailout. Back and forth it went until Chancellor Merkel of Germany rejected any notion of forcing Greece from the euro zone, and the market responded with a rally that topped at 281 points above Tuesday’s close. The session ended with a rush of profit-taking that gave back half of the gains.

This sort of irrational trading is characteristic of a market that is in the hands of traders as most long-term investors are standing aside. It is also indicative of a market that could top off at any moment at a technical barrier that traders or machines have identified as too difficult to overcome.

Barriers of significant technical resistance are the 50-day moving average of the Dow industrials at 11,582 and the 50-day of the S&P 500 at 1,234. But as noted yesterday, bear market corrections often run the indices up through necklines and even 200-day moving averages before sellers finally take charge. But, admittedly, with markets as sensitive as this, the most minor barrier may be the one that turns the entire market south. 

Yesterday, with relatively low volume and high volatility, the S&P 500 ran into trouble just above its intermediate downtrend line. With only 30 minutes to go, profit-taking drove the index down 100 points telling us that the downtrend line is intimidating enough to provide meaningful resistance. If by today’s close, buyers fail to conquer this simple trendline, traders might consider placing short sell orders just prior to the final bell.

In a time of market chaos it is important to always keep the major trend in mind — currently that trend is down, and so major decisions should be based on the best time to sell not the best time to buy.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

• See Serge Berger’s Daily Market Outlook: Another Sharp Rally May Precede a Retest
• See Sam Collins’ Trade of the Day: McDonald’s Could Break $100 Soon
• See Serge Berger’s Trade of the Day: Dollar Thrifty Looking to Drive Higher