sell off continues -- july 9% down or are we near end?

Big question is will we continue to sell off to match the july down 9% sell off or are we doing a more typical 5-6% sell off in the march rally that means we are getting close to being done.

Metrics that say we are near the end: VIX is jumping to over 26 which is up close to 30% from its recent lows, which I believe is similar to moves at recent lows. We are oversold on various internal measures. RSI (2) is pretty low for the indices. if we keep selling off and the vix keeps rising from here then this would strong suggest a change in character.

Thoughts on why this time is not like the last few pull backs: sell the news reaction -- positive news is getting sold in most cases. Small cap stocks never exceeded their previous highs in this last rally and they are near their lows of the previous pull back -- makes it look like a double top but for that to be confirmed need to break the previous lows -- i.e. fall through the valley in between the double top. so far we bounced right off those lows at 57.50 on the IWM. Small cap stocks have been leaders so far but that is changing. Internal indicators -- breadth related -- suggest loss of momentum and increase in downside momentum -- we are set for a rally but chances are it won't be a great one and that could lead to more downside later.

Some stocks especially the smaller cap ones are showing dramatic declines on no news -- TSRA, UEPS, CY are ones that come to mind. ILMN's decline is news related -- they missed revenues and guided lower. ugly.

In 2003, the S&P spent several months in a range from 1060 to 1160 -- the top end of which was about half way between the highs of 2000 and the lows of 2002. That same area for us this time (highs of 2007 and lows of 2009) is around 1115. We could be repeating that process of consolidation so perhaps 1000 to 1100. The idea is we may have reached that point where people need to see more improvement or more sustainability to the recovery before more highs are possible. I have been a believer in a strong recovery but that is based on indicators that only see at most the first half of next year. Is it possible that we roll over in the 2nd half of next year? of course given how similar we are to Japan but some of that depends on what the Fed does -- when do they raise rates and how much do they raise them. Ben is likely to know the Japanese situation and will therefore wait as long as possible before raising.

So I would not be surprised near term by a bounce that then leads to more downside.

more on ILMN after I have had the chance to review the quarter.