Yesterday the Fed gave investors a reason to take profits, today it was existing home sales data.

For the month of August, existing homes sales came in at 5.10 million vs. 5.35 million consensus estimates which is a month over month change of -2.7%. It was the first time in four months that new home sales showed a decline. The number shows that there is no real strength in the housing market. Moreover, when the new homebuyer tax ends in November, analysts expect home sales will drop sharply.

The S&P 500 reacted negatively to the poor data, selling off by -0.95% to 1050. It's been an overall nasty two days for bulls as the S&P 500 has dropped 35 points in two days from yesterday’s high of 1080 to today’s low of 1045.

The market was led down by commodity sector names like Transocean (RIG), Agnico Eagle Mines (AEM), US Steel (X), and Freeport McMoRan (FCX), which all saw heavy selling pressure on the day.

After two straight down days, the question becomes, is this the end of the “bear market rally” or is it just another opportunity to get in?

On today’s Buzz and Banter, Smita Sadana gave her thoughts.
 

"1) 1070-1077 is where the sellers had the first serious recent showdown with buyers. Until that can be conquered, this has become the next level of resistance.

"2) We looked at significant support levels earlier, in case of a decline. The same levels still stand. Here are the charts from earlier.


Click here to enlarge


Click here to enlarge

"So, the question remains how does one prepare? It has always helped me to think of such key reversals or 90% down days (which yesterday was not) as smoke alarms. Sometimes, they imply real danger, sometimes they are false alarms. But are they supposed to be second guessed? The response ought to be the same every time. You step away from the building, strap on caution, and wait for more clues to go back in without lingering doubts.

"I would be on a lookout for further selling, but no major imminent disintegration. Every time the market audaciously goes to new highs, it usually just doesn’t immediately collapse (unless there is a severe fundamental blow). Meanwhile, let’s keep the above mentioned support levels in mind."

Tomorrow is already off to a bad start as Research in Motion (RIMM) laid an egg after the close and reported a very weak quarter. The stock is currently trading down 12% and taking the Nasdaq futures with it.

Have a great night!