Situational Awareness (SA) is a US Air Force term coined during Vietnam war. It means pilot should always be proactively aware of their surroundings and other planes in their vicinity and accordingly adjust their flight paths.
SA is similarly useful in market. It allows us to reduce or increase our exposure depending on market conditions.
Market were rallying for some months on low breadth compared to historical breadth trends.
They were increasingly finding it difficult to make big moves.
Breakouts were failing on several stocks.
Large caps or the generals were leading while small caps were laggards.
In last 3 days we have seen big distribution days. A 900 plus day on breadth to negative side . This was followed by another big down day yesterday. That kind of breadth figures show big speculators selling.
At this stage we have not had a meaningful correction and breadth has not reached extreme. Historically at this juncture there tends to a weak bounce of 3 to 5 days, that ultimately fails and more downside follows.
That kind of action sets up lot of stocks for shorts as they also rally on weak volume after having first down leg. Then that bounce failure becomes good short setup.
In the meanwhile stocks that have held up well also start to correct.
One of the things to keep in mind is Fed action has distorted some of these patterns and the market has bounced back without reaching breadth extremes.
Is this the start of big bear market, unlikely. But it is most likely start of a 5 to 10% correction in the overall market. The small cap might have bigger correction.