Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Momentrix Market View Wednesday June 1, 2011

Wednesday June 1, 2011- The market giveth and the market taketh away. And the latter was the case today. Market participants came into a muted and slightly negative futures picture. Once the ADP employment statistics hit the tape, the futures started to trade a little heavier but not a panic by any means. Almost from the opening bell the market traded down, eroding consistently to the lows of the day in the 3 o’clock hour. The Dow finished the day down 279 points and the S&P 500 finished down almost 2.3%. The loss for the Dow was the worst decline in percentage terms since august of last year and in point terms, the last worst day was almost a year ago, on June 4, with a loss of 323 points.

                We were on the verge of changing the defensive position of the model portfolio, but our discipline has us work off of closing prices. That little rule was a savior today as the market took back yesterday and most of last week in one day of trade. With the extraordinary bid in the bond market and the ten year yield breaking down below 3%, it looks as though there was a major flight to safety, a process that has been taking place since early April. The ease from which these losses happened to day really puts this market in a poor position going forward. Although some of our sentiment indicators are pointing to market participants being defensive, the contrarian view of this fact does not matter yet (the crowd being bearish means to get bullish). It has been a very long time since the market has had a 10 percent correction and this looks to be well on the way to one.    

                All the positives yesterday were erased today. Volume had a large uptick while price collapsed. This is not the recipe for a market bottom. We don’t try to call the bottom exactly and with the buy the dip mentality of the past 2 years, it maybe way too early to try now. We need that fast money to get severely burned to get a better investable backdrop. The fact that the market is experiencing the highest volatility since QE2 was instituted; it is a good idea to take a cautious approach going forward. Volatility usually means the market is going through a major trend change, and this is likely the case in the near-term. This is not the time to hope for a price comeback, we will sell our losers as they trigger our stops.