Before getting into the meat of conditions today it should be noted soon the format for Dave’s Daily will change from just a market summary to something more action focused.

There would have to be some triggering events stampeding the herd. We got that spark from the eurozone Monday from both Spain and Italy. In Spain Prime Minister Rajoy was accused of taking a bribe and in Italy bank fraud is widely suspected as is a possible second coming of Berlusconi. This sank stocks there and in the U.S.

I posted a weekly chart of each ETF, Spain (EWP) & Italy (EWI) with DeMark weekly sequential counts where a 9 would indicate an exit from our trading strategy. (The weekly charts below don’t reflect Monday’s steep declines yet.)

EWP lost 5.25% Monday and EWI lost 5.8%. This ripped through other eurozone sectors which then spilled over to the U.S. The eurozone is like tar balls in the Gulf that wash ashore now and again spoiling conditions. Why? Because problems there have just been temporarily papered over by ECB QE liquidity and other financial engineering techniques.

In the U.S. economic data included a disappointing Factory Orders Report (1.8% vs 2.4% expected & prior revised lower to -.3% from 0.0%).

Eventually you knew lawsuits from the financial crisis would be forthcoming. S&P acknowledged that parent McGraw Hill (MHP) would be facing a lawsuit from those who relied on their ratings of subprime mortgages and other instruments.Moodys (MCO) fell in sympathy which hurt the financial (XLF) sector. The biggest losing sectors on the day were those with the highest volatility (beta) tech and (QQQ) and small caps (IWM).

It doesn’t take much to stampede an overbought market. Selling was widespread and volume naturally rose on selling as trailing stops were hit. The dollar (UUP) was higher on a flight to safety while risk assets were back in favor like gold (GLD) once again out of sync with the typical dollar relationship.

For our part we raised cash up to 35% of our primary trading portfolio as markets appeared primed for some corrective action. Clearly you can’t see indexes move along at a 5% monthly clip like we were back in dotcom days. And sure, the Fed remains busy adding liquidity to markets meaning there should be some dip buying at some point.

Volume did pick up some on selling and breadth per the WSJ negative.

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The charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com.