In last Tuesday’s post “Calm Before the Storm,” I said, “While I hope I am wrong, I expect the second half of this week to be the most volatile trading environment of the year so far” and that a poorly received Fed policy statement would likely result in a “downward move that will be tough to hold back.” To be honest, while those guesses turned out to be correct so far, they were not based upon any belief that the commodity-based stocks would precipitate the move. I really wasn’t expecting it and usually don’t try to forecast which catalyst will show up at any particular moment. I also have no clue when those situations will abate.

I get a sense that many market experts are believing that the worst is over, it was all just about commodity stocks, that the “correction” is healthy for the market, and we are about to head higher. I hope they are right, but other than blind faith, I see no reason for that to be true. It could come in the form of a reduction to the 10-year Treasury rate towards 4.7% or a reduction in oil towards $64 per barrel, but I really doubt that it’s going to come simply from a decline in selling pressure on the commodity stocks. I don’t see the same “buy on the dip” mentality that has been apparent during the past few years.

My focus at Hedgefolios is to evaluate what the market gives me and keep or change the signals accordingly. I have no bias other than I hope UP signals will go up and DOWN signals will go down. Look at stocks in the MANAGE section this week and you will find over 314 new DOWN signals versus 67 new UP signals. In addition to stocks, I changed 30 ETFs to DOWN signals without a single new UP. And while that seems a bit much, I actually contemplated changing over 900 UP signals and decided to tone it down expecting that the bulls would make some effort to hold up this market. As I suggested last week, it’s going to be tough to hold back additional selling with a tepid amount of new buying power.