Yesterday, there was much talk of fear: Fear of another financial crisis in Europe with rumors of an Irish default and change of government; fear of China doing more tightening to calm a hot economy; and fear that the U.S. economy’s record of just inching higher is not good enough. And then there was fear that the market would collapse on the opening following the worst day for the market in two months that had 8-to-1 negative breadth — an almost sure sign that a consolidation had begun.

But despite all the worry, the market had a mild reaction with the high-flying technology sector showing the most volatility. The S&P 500, NYSE Composite and Nasdaq briefly violated the first lines of support at their respective 20-day moving averages, but each closed above that trendline, so no technical harm was done. 

The technology-heavy Nasdaq tends to overreact to both buyers and sellers. A close under 2,699 would most likely lead to more selling with the next support at the December highs around 2,670, which in itself is not of real concern.

However, there has been a shift in market psychology with over 20% of the S&P 500 hitting new highs on Tuesday, followed by weakness on Wednesday and Thursday. A lower close today would likely result in many stocks triggering buying climaxes for the week.

And there were serious warnings from two other areas. First, the commodity-based ETFs, and especially those with ties to metals, took a hit yesterday.

Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) gapped down in a sharp sell-off that drove the stock through its 50-day moving average with a loss of 3.7%. Earlier in the day, FCX reported better-than-expected earnings. (To learn how traders should play FCX, see the Trade of the Day.)

And gold and silver broke to intermediate downtrends with the SPDR Gold Shares (NYSE: GLD) violating its first support line at $132, and the iShares Silver Trust (NYSE: SLV) violating its first major line of support at $27.40. Last week, GLD fell through its 50-day moving average, but the stronger short-term sell signal came today with the gap down through $132.

There is another concern that should be watched — the movement of the Dow Jones Transportation Index, which on Wednesday closed below its 20-day moving average, and yesterday fell to within 1% of its 50-day moving average now at 5,027. Continued weakness in the index presents several problems. From a technical viewpoint, if the transports break, it could lead to a “non-confirmation” of the bull market since the Dow industrials are still in a powerful uptrend. And perhaps even more important is the fact that the transportation average, more than any other index, has proven to be a reliable indicator of future economic growth. Focus on the transports, and you focus on the future.

Even though stocks have held up well, there is no reason to chase stocks of interest. A consolidation appears to be under way, so this is the time during which smart buyers let the market bring good values to their portfolios. Traders should now revert to the short side of the market for quick trades.

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.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.