Psychology Sours, Stocks Sink

As for Monday, investors took Wal-Mart's disappointment darkly. Black Friday delivered, but Wal-Mart's same-store sales warning trumped the 6% increase in overall Black Friday sales and the 19% increase in Thanksgiving holiday-weekend sales, as reported by the National Retail Federation. Wal-Mart projected it will report a 0.1% decline in same-store sales this month, which sent its shares down 2.71%.

Shares of other retailers also suffered Monday. The S&P Retail Index dropped 1.2%, as shares of Target(TGT Quote) and J.C. Penney(JCP Quote) fell 1.1% and 2%, respectively. J. Crew (JCG Quote) tumbled more than 7% on a CIBC downgrade, which followed a 22% rise in the stock last week.

Having gone into Thanksgiving with high hopes for retail sales, the market doesn't know what to look to next, says Marc Pado, chief market analyst at Cantor Fitzgerald. This is the early start of a two-week seasonal "void" between Thanksgiving and New Year's, when investors aren't sure what to latch onto, he adds. Pado expects the market is halfway to what he predicts will be a 3% decline for the major indices before they turn up again for a classic Christmas rally.

"We're probably overreacting to the weak dollar, and we're probably overreacting to Wal-Mart," says Art Hogan, chief market analyst at Jefferies & Co. "The punishment doesn't fit the crime, and the world didn't change overnight."