The DAX (German Stock Market) is down 1.70%. The CAC (French Stock Market) is down 1.37%. I use a 1% down day as a true selling day indicator. For example, if the market is down less than 1%, then a down day is a buying opportunity if the trend is up. However, if three out of four major indicies are down 1% or more, then I view this circumstance as a change in trend. It is best to step aside for the moment. Waves of selling overseas have been known to impact U.S. markets.
Also, the Santa Claus rally officially ends on the second trading day in January, according to the 2011 Stock Trader's Almanac. So, today may represent an opportunity for selling to enter the market.
Yesterday, the bullish sentiment reached an extreme only seen twice since 2007. Clearly, we should not be shocked by some selling today.
And then there is the inside day indicator. While I thought we might go higher to 1292, the explosive price action will be to the down side if we breach 1257, Monday's low, on the S&P 500 Index. The immediate target to the downside is 1239 (1257 - 18 = 1239).
The Russell 2000 Index (Small-Cap) was down more than 1% yesterday. Perhaps, the Russell was sending us an early warning sign of selling in the marketplace.
We will have to see how the day develops.
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