Stocks cannot hold the gain as sellers take stocks high to low.

That, my friends, is an intraday downtrend. Stocks gave a token move to the upside. Futures were up all morning, suggesting that stocks may try to move higher, but then they pulled a classic high-to-low move. The solidly-higher futures gave way almost immediately to some selling   then more selling and more selling through the rest of the day. There were a series of lower highs and lower lows into the close. You can see the damage by the end of the session. NASDAQ, -1.6%; SP500, -1.6%; Dow, -1.4%; SP600, -1.8%; SOX, -1.9%; NASDAQ 100, -1.5%.

It was, as I often like to say, an old-fashioned tail kicking in the market. It was due. There was the strong run to the upside, the selloff, a lower high, and then a rollover on Tuesday. NASDAQ did not even try to fill the gap from a week prior. It turned over and sold. All the indices are comfortably above the 50 day EMA, however. It was not a total washout, but what a downside for just one session.

What was happening? It looked like there would be new money coming in for the new month. The day did start to the upside, but unlike the last seven months, it was unable to finish to the upside. Bernanke was speaking in his semiannual son of Humphrey-Hawkins testimony to the Senate Banking Committee. He said they would keep the taps open for the foreseeable future. There was no pullback at all from the liquidity binge. Accordingly, gold and oil both shot higher. Bonds were flat and the dollar was stronger   go figure. Not everything acts the way one would expect.

Saudi Arabia sent tanks to Bahrain, and that could have been one reason that oil and gold were driven higher. That was not great news, and the Saudi stock market was down over 6%. It has been down three days in a row (it is open Sundays).

ISM manufacturing data for February came in strong. It was at 61.4, topping expectations. It was the highest reading in seven years. A very solid showing. Maybe it is the seven-year itch. It has been awhile, it hit a high, and Buffet has an itchy trigger finger. Maybe these factors are coming together for a positive, but it certainly was not a positive on the day for the stock market.

January construction took it on the chin. It was down 0.7%, but that was almost in line with the 0.6% loss expected. I was much better than the 1.6 decline in December, and that was revised up from -2.5. The economic data still seems pretty good although the market is technically exhausted. It has gone through several earnings seasons, has continued to run higher, and it is worn out. Indeed, it is showing signs of age and a long-in-the-tooth type of rally.

I have no issues with that. We knew it was coming and have been lightening up on positions. We were able to hook good downside positions such as QID   that was the QQQQ play to the upside. It is an inverse play. We have some SNDK to the downside, some COH and FCX. You cannot get them all. You have to get those with good entry points, and it was pretty fast there for awhile. We had to close some positions, but some are still holding up quite nicely.

In any event, it was a good bashing for the day. There were not many positives with sellers swarming the market after the head fake to the upside.

WEDNESDAY

On Wednesday we will see how the market responds to that tail kicking on Tuesday. The mortgage index is out before the market open. Challenger job cuts will tell us whether job cuts are rising or falling. There is also the ADP employment index. That will tell you whether jobs are growing in the private sector or not. Then there are the crude inventories. It probably does not matter much what they are; prices are going up, and there is nothing that can be done about that. These are some relatively important numbers. ADP is getting less play because it is somewhat widely divergent from what the Friday jobs report tends to show.

We start the day with the indices still above the 50 day EMA but struggling. They made a lower high and they reversed, still on some decent volume. They are likely to come back more and sell back to those levels indicated in the technical picture. We have had some good selling. Often after a slam lower there is a bounce back up, and we may be able to get into some of the downside plays that we wanted but could not get into.

You can’t get them all. Pick the ones you want, focus on them, and grab them if you can. There are some we would like to try if they make a bounce, and we will be looking at others. We were able to get some good positions. We also need to watch out for our upside.

A lot of them were flirting around at the 50 day EMA or just above it. We do not want to let them get out of hand if things continue to deteriorate. I think they will, but it is never a straight line. Obviously there was pretty much a straight line up for SP500, but it never lasts. It sold off, it bounced back, and now it is selling back down. It will try to find support near the 50 day EMA and the highs up in January. Then it will probably try to bounce again. It is up and down as it works its way.

The question is where it will find its purchase. It did so at the 50 day EMA back in November. I don’t know if it can do the same now. It is already near that level. There is some support from early January and that late-January low. I am looking there for the main area of support.

There is not much of a change in the picture. It is overall to the downside, and the market still needs to correct. A lot of stocks have reversed and will have to repair the damage. There are very few knifepoint turns up from this type of selling, particularly after a three- to four-month run to the upside. It is hard to turn on a dime in that case and continue upside with any meaningful gains.

While we may not be looking for that many upside plays   not given that prognosis   some will still benefit even as the market goes down. Look at some of the energy stocks. They are pulling back, but they are not breaking down. They are likely to continue their moves given the performance of the product that they reflect (oil). We will probably see them pull back, and we can get buying opportunities from those stocks.

We will be looking around in whatever areas are holding up. We will take opportunity where it presents itself, but overall it is a corrective time for now. We will have to factor that in with less upside and be looking at more downside. We will put in more of those plays versus the upside because that will give the best probability of return. We do not want to go overboard. I do not think there will be a major selloff, although I could be wrong.

There is a good breakout, a good base over the summer, and a good breakout. The first test was made, the second run was made, and now we are having the second test. The economic data is improving. There is still a lot of liquidity in the market. That suggests that the market still has room to run unless something very bad breaks   if inflation suddenly explodes, for instance, or something happens in the Middle East that affects the economies through oil prices or something related.

We are looking at this just as we have all along. We thought were going to have a correction of modest means. It will not be unfelt, but it will be relatively modest in the big picture given the runs to the upside. After that is over, I still think there is plenty of reason for the market to run higher. We will play the downside while it presents itself. When we see good stocks holding up in position, we will have them at the ready on our watch list. When they turn back up, we can move in and make the plays.