The rise in bond yields was the biggest culprit for Thursday's weakness. I have been saying for quite a while that this market was overdue for a pullback. So when it comes, most people want to look for a big negative headline to hang their hats on. But suffice it to say, the news was just an excuse to take profits off the table.
The weakness was notable, though the declines in the major indexes were half as much as we saw at the end of February when the markets plunged. One surprising stat I noticed was that downside volume on the NYSE made up 93% of total volume. That is one heck of a buyer's strike.
And looking at the Hi/Lo index, the NYSE went from having 319 net new highs on Monday, to having -65 net new lows today. That is a big swing. I suspect that many of the new lows came from closed-end bond funds and the like.
What was nice to see was that again this selloff was met with high levels of bearishness. Investors are not taking this latest pullback in stride. The CBOE put/call ratio closed at 1.25, an elevated level. And the ISEE finished at the put/call equivalent of 1.35, a very high reading. Likewise, the ARMS Index closed at 1.56. These are good signs, and should help stem the tide of selling at some point.
I don't think this correction will be too deep, as there is still too much underinvested money on the sidelines. But I still think the market could take 3-6 weeks to form another base from which to launch higher. Patience.