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The market reversal

The market reversal: the S&P 500 hits its highs for the day just after 10 AM ET, but started drifting lower after 11. Energy stocks, Alcoa going negative, and particularly disappointing comments from KB Home on its conference call, which dropped the whole home builder market, were early catalysts.

But there were a series of very quick down moves which saw the S&P 500 move from roughly 2,040 to 2,010 in an hour.

That's a big move for an hour, clearly programs going off. Explanations include:

1) Reports that some traders sold a boatload of calls in several large cap names (Pfizer, Microsoft, Yahoo, JNJ, Cisco and others mentioned).

Sounds like someone was trying to cap their upside in stocks that they own.

2) President Obama's request to the Congress for authorization to use military force against Islamic State. However, as we have reported on our air, this is not boots on the ground in Iraq.

3) While it's a longer-term issue, the end of QE is a big topic and what that brings to stock markets. Traders are well aware of the strong correlation of markets to QE.

One thing to watch is the poor performance of financials. They have performed poorly today and were among the first sectors to drop off. We are going into earnings reports for big banks this week; it is fairly common to sell into earnings a bit.

We could have more volatility tomorrow. The European Court of Justice will rule on the legality of the Outright Monetary Transactions (OMT), which promised to buy sovereign debt on the secondary market. It was never done, but any ruling that such actions are not legal will put a damper on sentiment, even if it is non-binding. It would be difficult for the ECB to do a QE program in the face of such a legal turndown.

See the pattern: unable to hold rallies, especially after Europe closes, bonds catch a bid.

What seems to be happening is that the market is starting to price in more risk, and a potential earnings slowdown. Another issue is the decline in commodities, not just metals but even now in agriculture products ...deflation is being priced in there.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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