After opening higher this morning, the market finally showed some fallibility in 2012, giving back those overnight gains and heading sharply lower. Many are pointing to a very disappointing new home sales figure as the catalyst for the sell-off, but in truth the market had reached overbought levels and needed a pull-in. While economic data has steadily improved, the debt crises in Europe remain tenuous, and there is great uncertainty in the world economy. However, the market has been forward looking, hoping for decisive action from policy makers and improving conditions.
In earnings news, AT&T (T) finished down 2.5% after swinging to a loss due to a few large one-time charges, mostly due to its failed merger with T-Mobile. Netflix (NFLX) added to its sharp overnight gains, squeezing the legion of shorts that had piled in. Despite seeing net income fall, the stock finished the day up more than 22%.
The market's response over the next few days will be interesting to watch. Was this low-volume climb a harbinger of better things to come, or is the herd once again being drawn in before a harsh sell-off? All we can do is monitor the price action and obey technical rules. Stay disciplined and in control, and your risks will always be limited.
*DISCLOSURES: Scott Redler is long SPY, GOOG, VXX, GERN, KV.A, X, LULU, OIH, WYNN, WMT, SNDK calls, DNDN calls. Short LVS, DIA.
