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Perhaps the most notable losers on the day were the recently interest rate insensitive Dow Utilities, which decided to wake up and smell the interest rates, and what they smelled wasn't pleasant.   The Utilities dropped 1.5% on the day, ending their divergence with bonds.

Yesterday's loss once again occurred on relatively weak volume, a pattern which has persisted over the past two weeks.  The lack of a blowout volume day during recent losses bodes ill for the market.  The Euphoric Trader has temporarily gone into hibernation (or perhaps a margin call), and with his departure a powerful prop has been removed from under the market.  A lack of buyers, rather than outright panic, continues to characterize recent losses.

The market's inability to stay aloft over the past two week's has also occurred because of the absence of another familiar bull market participant: The Equity Inflow.  Data released by AMG Data last night showed $1.4 billion flowing out of equity funds over the past week, the second straight week of outflows. Without a continuous inflow of funds to feed the market, the safety net provided by the boundless sea of liquidity has begun to resemble a piece of Swiss cheese, with seepage occurring everywhere.

The lack of volume will continue during today's pre holiday session, with new rumors likely replacing the old, and fear and hope waging a constant battle.  We would ignore the minute to minute gyrations and stay aware of the trend, which remains down in the short and intermediate terms. 

That's one version of Wednesday's market action, now for another take on yesterday.

Yesterday's 171 point surge by the Dow was largely attributable to the dynamic duo of Dorfman and IBM.  A split bound IBM contributed 70 points to the Dow's rise, and a powerful rally in financial stocks added a large portion of the remainder. The financials rallied after ex-CNBC commentator Dan Dorfman reentered the limelight by digging up the aging and often denied Chase-Merrill Lynch merger rumor.   Neither the split related rally in IBM, nor the  rumor related spike in the financials are likely to be sustainable.  Beyond stock split and rumor related activity the rest of the Dow stocks performance was underwhelming, with cyclicals (ex. oil) putting in a weak showing on the day.

IBM's rally pulled the tech sector and NASDAQ up on its coattails, but we wouldn't get too excited about a tech rebound just yet.  Overlooked by many traders in yesterday's tech sector jump were more reports of continued weakness in the semiconductor equipment industry, and pricing pressures for memory chips.   Applied Materials ended down on the day, and Intel was pulled lower again on rumors that its new Pentium 111 processor's sales were less than robust.

The Internet stocks did rally, but here again, a look under the surface tells a different story.  Five Internet stocks made their debut following IPOs yesterday, and the results were less than encouraging for anyone who is expecting the Internet stocks to rebound and challenge their recent highs.  The top performers among the 5 IPOs were StarMedia which gained 73% and DLJ Direct with a 50% gain, both figures a far cry from the premiums which would have been garnered only a short time ago.  Of the remaining 3 IPOs, one stood still while 2 lost ground. Yesterday's IPO action (along with Tuesday's less than stunning debut of barnesandnoble.com) indicates that the days when merely tacking a .COM unto the end of a company's name meant an instant 100% premium are clearly drawing to an end.

The overall market's performance outside of the big caps was anything but encouraging.  The Russell 2000 gained less than a point, decliners led advancers 1552 to 1403 on the NYSE and by 2099 to 1836 on NASDAQ.  The new highs-new lows numbers told a similar picture of market weakness, with 2 new lows for every new high on both NASDAQ and the NYSE.

Tuesday's two part episode of 'buy on the dip and then run screaming for the hills' was notable for three reasons: 1. The technical damage done by the afternoon reversal,  2. The Death of the Internet Sector, and 3. The reaffirmation that the market's safety net, 'the buy on the dip mentality', is still there.

The sharp afternoon reversal after a strong rally all but sealed the market's intermediate term fate: the intermediate term sell signal will be confirmed at today's close and the market will make its way in fits and starts to the next support level, which is long term support. Typically after an intermediate term sell confirmation is given the market will next find support at the level at which a sell signal would be triggered for the next time frame (the long term). This implies a correction by the S&P 500 to 1188, by NASDAQ to 2110, and the Dow Transports to 3108.

The time needed by the market to complete its correction to these levels will be lengthened by the presence of two factors: the Dow Industrials have yet to confirm the intermediate term sell signals given by the other major averages, a move below 10370 would be necessary to trigger an intermediate term sell on the Dow.   The second factor which will lengthen the time needed to correct is the continuing presence of the 'buy on the dip' faith shown by many investors.  This belief that any selloff is a buying opportunity provides a powerful safety net under the market, and this belief will only be dissipated by a prolonged drop below long term support.

Yesterday was ugly, with up volume swamping down volume by a margin of 4 to 1 on the NYSE, and every industry group with the exception of the utilities taking it on the chin.  Perhaps more than ugly, Monday was downright shocking for it was a day when one of the very pillars upon which the New Era has been built was rocked to its core.

That pillar is of course the notable absence of the word "SELL" in the vocabulary of many brokerage firm analysts.  In an age when many analyst's research reports are indistinguishable from a company's public relations department's press releases, we must admit it brought a tear to our eyes when we heard that long forgotten word waft through the air after an eternity in exile.

CS First Boston's sell rating on Banc One, Chase, Citigroup, and JP Morgan rattled the market yesterday, and we have a sneaking suspicion that the heavy selling that followed was a result of many traders doing some quick arithmetic and figuring out where the major averages would be trading if the word had never left the analyst vernacular.

After the dust cleared and the day was mercifully put to rest by the final bell, intermediate term sell signals had been triggered in the the S&P 500, NASDAQ, and the Dow Transports.  The trigger levels of 1322, 2496, and 3477, respectively, now stand as resistance to any rebound.  Yesterday's signals by the 3 averages are a warning, but it should be remembered that they are intermediate term signals and a one day move below resistance is not the stuff of which confirmed intermediate term breakouts are made.  If the 3 averages remain below their sell signal levels for 2 more days, then the signal would be confirmed and the averages would next find support at 1188, 2110, and 3108, respectively.

Yesterday's one day move below support raises the risk level, but until the signal is confirmed that's all it does.  Sentiment is still on a roller coaster, with the market living economic report to economic report, and the market will be presented with 2 opportunities to react and change course with today's release of Consumer Confidence and Existing Home Sales figures.

The calm on Main Street is providing a safety net under the market as the (allegedly) smart money buckles under the weight of fear and uncertainty following the Fed's change in bias. The market's fate, in many respects, rests on a continuation of the individual investor's belief in a never ending period of prosperity. It is the retail investor who has carried the market over the past few months as corporate insiders have been bailing out en masse, and it is the retail investor who will need to continue to shoulder an ever heavier burden in the coming weeks if the market is to remain on its post-October upward trajectory.

We would pay close attention to tomorrow's consumer confidence numbers and Friday's Michigan Consumer Sentiment survey.  Signs of weakening in either of these surveys, following hard on the heels of last month's weaker than expected retail sales numbers, could spell trouble for the market in the near future.   A less confident consumer is one who is spending less, and this includes providing the market with the steady stream of heavy equity inflows upon which its health depends.

Friday's Personal Income and Consumer Spending numbers will shed additional light on the state of the consumer economy.

The consumer's psyche is able to overcome minor encounters with 'smart money inflation jitters', but often suffers damage in the face of full scale retreat by the pros. This week's economic calendar will provide several opportunities for the market's current bout with inflation dread to either deepen or temporarily recede.  Figures are due on Existing Home Sales (Tuesday), Revised GDP (Thursday), and the Chicago Purchasing Manager's Index (Friday).

The long bond's resiliency in the face of last week's Fed announcement and the string of all time highs registered by the Utilities have produced a mild optimism among traders that this week's figures will be benign.  The potential fallout, both in the bond and stock markets, from any negative surprises will be magnified if this week's figures show any signs of inflationary pressure.

We would also keep an eye on the international front this week for events that could impact the U.S. markets.  Japanese Retail Sales figures are due tomorrow and Household Spending numbers will be released on Friday.  Traders will be looking for signs that the Japanese economy is on the mend. 

Also keep an eye on the Euro and the yen this week.   A continuation of the dollar's strength against both currencies would make its impact felt in the form of lower profits for US multinationals.  The yen's recent decline could be arrested if this week's Japanese economic reports show signs of a pickup, but we see nothing on the horizon to stop the Euro's recent string of record lows against the dollar.  Economic weakness in Italy and Germany (where business is now at a 2 1/2 year low) will likely continue to exert a downward pull on the Euro.

Latin America also bears watching this week.  The markets will likely remain on edge this week following last week's regional selloff on fears of an imminent devaluation of the Argentine peso. A further deterioration of the situation would have a knock on effect on US markets.

The Latin American selloff is creating a buying opportunity on another front however.The wholesale dumping of emerging market bonds in the wake of last week's devaluation jitters has left many emerging market bonds attractively priced, with the prices of some bonds tipping towards the undervalued end of the scale.

Another buying opportunity is presenting itself today in a market only a devout contrarian could like: Pakistan, where the Karachi 100 Index has risen 8% today and has broken out to the upside from a 10 month bottoming pattern.