Last week's indicator review found weakness following the momentum highs of September. As we can see from above, that weakness continued this past week, taking the S&P 500 Index back toward its early October lows, with a majority of sectors trading in downtrends and clear technical damage to several stock groups.

The Cumulative Demand/Supply Index (top chart) is in very oversold territory that generally corresponds to at least a short-term bottom area in stocks. New 20- and 65-day lows (middle chart for 20-day lows) have expanded significantly, taking out the levels of new lows seen during late August through early October. Indeed, as the chart from Decision Point indicates (bottom chart), we've also taken out the early October lows in the advance/decline line specific to NYSE common stocks. Of the last 11 trading sessions, only three have seen more advancing than declining issues.

Last week's sector review noted a pullback to a multiday trading range as part of what appeared to be a topping process following September's momentum highs and October's price high. That scenario continued to unfold this past week, as we broke sharply below the trading range and closed near the week's lows. As we can see above, this has turned five of the eight S&P 500 sectors that I track bearish in Technical Strength, with the others giving neutral readings.

Stocks did indeed close near their lows, trending lower through most of the session. By day's end, we had expanded the number of stocks making new 20-day lows across the NYSE, NASDAQ, and ASE to over 2700 -- remarkable given yesterday's solid bounce.

I took a look at what has happened historically after we've had three consecutive days of 20-day lows exceeding 2000. Going back to late 2002, which is how long I've kept these data, we find only 39 instances of such weakness. The next trading day, the S&P 500 Index (SPY) has averaged a gain of about 1% (24 up, 15 down). I find no significant upside or downside edge after such a relief bounce.

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Here we see the S&P 500 Index (SPY - blue line) plotted against the average five-day high-low range for SPY. Notice the significant jump in volatility during the recent selloff, as the average range has essentially doubled from its October lows. This has meant in recent days that the more distant profit targets, as published each morning before the market open via Twitter (follow here), have been consistently hit and even exceeded.

Note the price breakdowns Wednesday in the Russell 2000 Index (IWM; top chart); banking stocks ($BKX; middle chart); and homebuilding stocks (XHB; bottom chart). Each group has broken below recent lows, making multimonth lows.

Here are three common problems that I've observed among experienced, talented traders who are struggling to get to that ever-beckoning next level of performance:

1) Position Sizing - They don't take their largest risk when they have their greatest feel for the market and conviction about direction. Very high confidence trades may be sized relatively small; lower confidence trades are sized too large (often to make money back from earlier losses). They are taking their biggest cuts at the plate when the ball is out of their strike zones;

Below we see the Russell 2000 Index ETF (IWM; top chart); the raw materials ETF (XLB; second chart from top); the homebuilders ETF (XHB; second chart from bottom); and the regional banking ETF (KRE; bottom chart).

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Last week's sector update showed bullish short-term trending among most of the sectors, but stressed that this could be part of a topping process dating back to the momentum highs of September. We did indeed see a pullback in the market since then, with all sectors losing Technical Strength (a proprietary measure of short-term trending) from the week previous.

I took a look at the sector performance page for the Barchart site, which tracks the relative stock market performance of a wide range of industry and sector groups. It was eye-opening to see what has been strong and what has been going wrong as investments this past year.

Among the top ten performance groups are gold mining stocks, precious metal and jewelry companies, non-ferrous mining shares, silver mining firms, and integrated oil companies. All commodity related. Additionally among the top ten were food, flour, and grain firms and paper and related products companies--also commodity related.

As an initial exercise, I took a look at the first 10 minutes of trading in the S&P 500 Index (ES) futures. We transacted 82,782 contracts. Here's a breakdown of 10-minute volume by trade size:

• 1 lots: 7341 contracts
• 1-5 lots: 24,847 contracts
• 6-10 lots: 10,791 contracts
• 11-49 lots: 25,997 contracts
• 50+ lots: 21,147 contracts

As reported earlier, the CME is reporting volume in smaller blocks, based on the identity of the counterparty. Thus, if you sell a 50-lot, this would be reported as 50 one-lot trades if you transacted with 50 different counterparties. Conversely, it could be reported as a single trade if one counterparty took the other side.

In light of yesterday's post, note the downside break in the Oil VIX.

The weak dollar/strong commodity trade continues to support higher stock prices, as world growth outlooks trump inflation concerns for the time being (click to enlarge).