Now, Tuesday's Action Presents More Problems Than Monday's Did

After stocks closed on Monday we pointed out that the setback didn't actually do a whole lot of technical damage. After Tuesday's drubbing, that thesis changes rather dramatically. While there's still a path and way for the bulls to rekindle the rally and sidestep any further losses, that path is narrower, and the ways are fewer. One more rough day like the past few, and the market could be too far gone to stave off a more complete correction.

Let's start with a look at the S&P 500. As of yesterday it was holding above its 20-day moving average line (blue) at 3973. After Tuesday, it's not. Perhaps more concerning is the fact that the S&P 500's Volatility Index (VIX) managed to fight its way above the falling resistance line (red) that had been guiding it lower since mid-October. It's a hint that traders' subconscious and unconscious thoughts are increasingly leaning in a bearish direction. The market may soon follow suit.

The NASDAQ Composite broke under its 20-day moving average line (blue) as well on Tuesday. Not unlike the S&P 500 though, the composite is also still finding some technical support at a key level. That's 10,953, where the NASDAQ bottomed on Tuesday but also hit a low late last week, and the week before. That level's also been somewhat contentious more than once since late September... both bullishly and bearishly. [The S&P 500's horizontal floor is slowly but surely developing at 3910, where the index has hit a low several times since the latter half of November, but where it peaked several times since mid-September as well.]

Until the NASDAQ slides under that line at 10,953 -- and really, under the 50-day moving average line (purple) at 10,915 -- it's got a fighting chance at a rebound.

That chance is fading pretty quickly, however, given how even blue chips are holding up... or not holding up. The Dow Jones Industrial Average (which had been a clear bright spot for the broad market of late) took a major technical tumble on Tuesday too. That is, it closed below its 20-day moving average line (blue, at 33,805) for the first time since mid-October today after losing momentum for the better part of the past few days.

The smart-money here is being patient. Given four straight days of selling, the odds are good we'll see a bullish pushback on Wednesday, or at least before this week comes to a close. Don't read too much into that move. It's likely we'll see the bulls as well as the bears test one another quite a bit for the rest of the week in an effort to make the "other side" prove what they're made of here. It's more of a process than an event.

In a similar vein, don't be too quick to assume more losses straightway inherently means the market's slipping into a nosedive. It's possible the bulls are merely waiting for the bears to make a major headfake before swooping in and driving stocks back into bullish mode.

Nevertheless, all of the aforementioned lines mean something here, and should be watched closely even if it takes more than one day for the market to figure out on which side of them it really wants to be. There's a buildup brewing here, and whichever sides ends up winning, it could lead to a more prolonged move.

The VIX will go far in telling us just how much conviction the bulls have... or don't have.