Heed the Lessons of Yesterday's Selloff

"Character consists of what you do on the third and fourth tries."

-- James A. Michener

The most significant thing about the action in the market yesterday wasn't the giant point loss or the intense selling -- the most significant thing was that the large drop likely signals that a significant change in character is taking place.

For months the market has been chugging along steadily, with buyers stepping up every time we dipped. Fear and worry were dismissed and the primary focus was to not be left out as an ideal confluence of economic conditions and corporate growth led to ever higher stock prices. Although the market was technically extended, the momentum stayed strong and buyers were lulled into complacency.

Some will say there was no reason for the abrupt change in market action yesterday. Others will try to blame program trading or other manipulative influences. ...