The market is taking a much overdue breather today. Whether today's move is a just a pause before another leg of the rally or a beginning of a sustained downturn is anyone's guess. If you believe in trend-investing, you're in the former camp. If you believe in mean-reversal, then you're in the latter camp.
The technical pattern in today's move suggests that the market may be heading towards a short/medium-term consolidation. The technical pattern we are referring to is called "island reversal". Whether this thesis is correct or not, time will tell.
The market will not sell-off on its own. It needs a reason, whether valid or not. The reason for today's sell-off was a huge jump (+22bp) in Spanish government bond yield given increased political uncertainty there. There are plenty of others in hibernation, they just need to pop their head - sequestration, oil heading $100, Middle East tension, currency war, disappointing economic data etc.
If the market is looking for excuse to sell, the high fliers of January might be most vulnerable i.e. transportation, energy and retailing. Watch out!!!
