Sell Into Rallies Still Rules Street

We are getting just the kind of trading that would be expected: modest rally on shreds of good news, met with selling (or just buyers stepping away) midday.

Remember the basic facts of the market: 1) stocks are oversold, 2) traders are extremely bearish, and 3) "sell into rallies" remains the dominant trading motif.

With that said, there is some hope that the tape is in a consolidation mode. What's that mean? In plain English, they're hoping we are at yet another bottom. Yes, another bottom--if we stop here we have a Triple Bottom (cue the creepy music), with January, March, and now the end of June.

But a bottom on oversold sentiment is not enough, not by a long shot. We will need a string of positive comments to really move things. Deutsche Bank and UBS saying they don't need to raise more capital, and GM saying June sales not as bad as expected are a good start. Tomorrow, nonfarm payrolls, if better than expected, should create a modest rally, but even there, expect selling into rallies if it moves too far.

Particularly troubling are materials. I have noted for days that this former leadership group is showing signs of topping. Again today steel stocks are under attack. I am told by traders that the fundamentals are still intact, that foreign countries are keeping up production giving support to the domestic producers.

Today, for the first time, coal stocks have come under attack.

If you are bearish, this fits in well with the main thesis: that in a bear market, it's not over until the leadership groups get sold off.

If you believe this thesis, the bears say, then energy is next.

Questions? Comments?