After yesterday's selling, more than half of the DOW 30 stocks are now down 10% from their most recent highs and the Dow itself is down 5% from its 52 week high. Interestingly though a number of the large cap defensive stocks are not down by hardly much. PepsiCo (PEP) is down only 2.2% from its 52 week high of $71.89. Altria Group Inc., (MO) is down just an incredible 0.6% from its 52 week high. Colgate Palmolive (CL) is down just 0.77% and Johnson and Johnson is down just 1.3%. McDonalds (MCD) is down 2.8% and Pfizer is down 2%. This are considered defensive stocks and in the latest downturn they are holding up well. This also should give some indication that a lot of the smart money thinks the bull market is not over yet.

But look at this chart on the financials index XLF. The index is down 10.93% and without the financials, the chance of a major upturn is pretty limited. The financials must turn back up and sustain a recovery, but looking at the chart it is obvious that while the market may be trying to climb, one of its key components is unable to. Without the financials, the entire rally to any new high will be suspect. This is why it is important to remain cautious and why I have stayed with my cautious bull strategy.

Today MACD (Moving Average Convergence-Divergence) Divergence is at -2.42. Definitely a sign of more selling to come. The ultimate oscillator is lower today indicating more selling ahead. I added the slow stochastic which has given a definite sell signal. I have added three support zones that I am following. Zone 1 is already broken. Once Zone 2 breaks then at Zone 3 the market has to hold or it will break the 200 day and seriously jeopardize the bull market. The recent string of lower lows and lower highs is a bad sign and typical of a market in trouble.

Looking at put premiums today is interesting. Premiums have moved up on some of the stocks I follow, even more today despite it being a fairly quiet day after yesterday's selling. At one point today the VIX which measures volatility was up to 18.72 before it closed down at 18.09. But remember that yesterday's downturn which saw all members of all the Dow Indexes, Transportation, Utilities and Industrials fall, has happened 5 times since the March 2009 lows. For myself I plan to keep cash on hand and I bought SPY puts today just in case there is more selling tomorrow. Whether I hold over the weekend I am not sure.

For those selling puts I would suggest selling only on stocks you would own and only at strikes you are comfortable with. On the other hand selling naked calls could be tough as well should the market turn around and run higher. Any serious bounce up will see a lot of buying. Remember from my comments yesterday in my second post that a lot of investors are out of the market, so slimmer volumes can really move stocks. I reiterate my comment from yesterday, be careful until there is a clear signal as to where the market may be heading. Even sideways is still a direction.