It’s rarely any one single element that leads to major reversal such as we saw today. However, we can identify a half dozen elements today are significant and contributed the mid-day sell off:
1) The intraday reversal was set up by the opening exuberance and emotional New Year buying – not fundamentals.
2) The drop in Copper and Oil is reflecting a slow down in the United States economy; The CRB Index broke support at 300
3) ADP data – which in the past has been none too reliable — surprised to the downside significantly;
4) Both Ford and GM saw sales declines of 13% in December;
5) ISM remains near the flatline, as Manufacturing is still struggling with inventory and decreased demand; (who is all excited about 51% and change?)
6) FOMC minutes reveal inflation remains the primary risk to the economy, even as it shows signs of being a "touch softer" than the Fed previously believed.
Note that the selloff in equities began an hour prior to the FOMC minutes . . .
It’s still early, and after dropping 150 points, equities are clawing back. Regardless, today is quite interesting.
UPDATE January 4, 2006 5:55am
Trader Mike has a good couple of charts and several worthwhile links to those who are interested in the Technical underpinnings of the reversal . . .