They have reason to be assertive. It's fairly typical to have a sharp bounce in the middle of the kind of severe decline we saw early last week because once the forced selling pulls away it creates a vacuum that allows shares to rise.
But a v-shaped recovery—also like we saw last week—is fairly rare without some kind of retest of the low, which was last Monday morning.
That retest creates problems for the market.
1) A lot of shorts covered after Thursday afternoon's spectacular 2 percent rally in the S&P 500, so there is less buying power on the Street.
2) Investors who bought on the first dip are usually more reluctant to buy on a subsequent dip.
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Another problem is the third-quarter earnings outlook. Expectations that the second half would see a significant turnaround in the first half's dismal performance—Q2 earnings were down 0.7 percent and revenues fell 3.4 percent, according to Factset—are not materializing.
There are three problems:
1) Earnings declines continue in energy, as there is no sign of an end to the supply glut, with a stunning 61 percent decline in earnings expected compared to the same period last year.
2) Industrial earnings are expected to decline 7 percent because many get significant earnings overseas and the global economy remains weak.
3) Bank earnings—one of the expected drivers of earnings in the second half—are expected to have significant earnings improvement (about 10 percent), but many feel those rates are unlikely to rise significantly because low rates continue to make it difficult to improve the bottom line, though there are modest gains in the loan portfolios.
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As a result, Q3 earnings have been slowly sinking, rather than rising. On June 30, third-quarter earnings for the S&P 500 were expected to be down 1.1 percent. (They had been coming down for a month.) Today they are expected to be down 4.1 percent.
Revenues are expected to be down 2.6 percent.
Finally, don't believe the argument that no one is in the week before Labor Day. The subways were packed this morning. Labor Day comes very late this year. A lot of schools are starting this week, so not as many people are on vacation as some seem to think.