No One Says We Have to Drop Suddenly

And you thought the market couldn't go down, didn't you?

Not only did the S&P 500 go down -- and, yes, it came back up a good portion by the close -- but it was down two consecutive days for the fist time since the early October lows. That's a change.

Before we get to the day's statistics I want to discuss the anatomy of a correction. They don't always happen the same way, but I have rarely seen a correction where everything is going along swimmingly and we drop all of a sudden and never look back. In other words, corrections usually start slowly and then finish all at once, fast. They rarely start off fast.

Just take a look at the blue arrows on the chart of the S&P that represent the corrections we had this year. In late February, we had what looked like a lethargic pullback. I'm certain, after two months of straight up, the sentiment was similar to today: Folks joking that the market couldn't go down, even after we had a pathetic down day. Then we rallied again. This was over the course of a week. Then look: Two to three fast down days and it was over. That last part was the shakeout that I'm certain got folks nervous.

Then look at mid-March. Here it was a reversal from a high that probably got everyone scared. It was followed by a nothing day and then a rally where we closed at the high, right near where we were two days prior. And then came the rug-pull with two days of selling. And then it was over.

In late April it was also a nothing down day or two, another rally that closed at the high and then the big rug-pull. In this case, the correction lasted an entire month, not just a few days.

In July, we saw a moderate pullback, another rally. So, it was about two weeks of churning, and then came the fast down days -- four of them. Finally, in September it was slow leakage for nearly two weeks and then two fast down days.

Sure, it's possible Tuesday and Wednesday were enough to take us to the end of the correction, but my guess is we're not quite done yet. Even if we rally again.

Also, notice on the chart how the lows tend to look like one-day affairs. It's what many would call a "V" bottom. Most of the time that last push down comes with positive divergences, so what appears to be a V doesn't look like a V at all in the indicators.

It is human nature to want to buy, not sell, and I think that is evident in the chart.

Now, as for the statistics, there was some good news. Despite breadth being red, it wasn't red by much, and that means Wednesday was the first day since the calendar turned to November that breadth outperformed. The McClellan Summation Index still needs positive 1,500 advancers minus decliners to halt the decline, but there was a small change and it has to start somewhere.

Another small change was that for the first time in at least a week the number of stocks making new lows did not expand beyond the prior day. They are still quite high, but not expanding means some of the selling dried up.

So, all in all, I saw some constructive statistics in the market for the first time in weeks. That's a start.

At the time of publication, Meisler had no position in the securities mentioned.