Stocks fell sharply Tuesday, putting the Dow on track for its worst single-day decline of 2012.
In recent trading, the Dow was down more than 200 points, or 1.64%, while the S&P 500 was lower by 1.65% and the Nasdaq was off 1.59%. The downturn follows sharp overnight declines in Asia and, especially, Europe, where the news seems to get worse every day. (See: Unintended Consequences: ECB's Effort to 'Save' Europe Will Lead to Its Demise, Mauldin Says)
I had the opportunity discuss the market action with my Breakout colleague Jeff Macke and Barry Ritholtz, CEO of Fusion IQ.
With the Dow and S&P having rallied nearly 25% since September, both market mavens agree it's "time for a reasonable selloff," as Ritholtz puts it.
Macke says S&P 1300 is the first level of support he'd consider "reasonable" and 1250 as the next major support, as detailed in his latest Purple Crayon segment.
At this point, neither Macke nor Ritholtz seems particularly concerned about the selling and both agree a "pause to refresh" would be healthy after the rapid, nearly uninterrupted rise since September.
But action in the gold market could be cause for concern, according to Macke.
Gold was down 2% in recent trading and hovering near a 6-month low and has now fallen nearly 12% from its 2011 high at $1900 per ounce. The decline is barely a blip on gold's long-term chart but the nature of the recent selling is troubling, Macke says, particularly the big drubbing last week after Ben Bernanke's Congressional testimony. (See: Bernanke Speaks, Gold Swoons, Peter Schiff Scoffs: "They're Doing QE3 Whether They State It Or Not")
"Everyone talks about being long-term holders in gold -- obviously they're not because you saw huge turnover once we broke 1750," he says. "That concerns me about stocks as a whole because we've had that same cranking up. The more people think 'this can't possibly happen,' the more it's likely to happen."
Whether the selling in gold proves a harbinger for the stock market remains to be seen. The good news -- from a contrarian standpoint -- is sentiment about stocks has not nearly been as bullish as for gold lately, at least among retail investors. A few more days like Tuesday and any enthusiasm generated by the recent rally will almost certainly be wiped out.