The tide really now appears to have turned to the downside, as another triple-digit Dow loss yesterday has now made the scorecard read that the Dow has undergone triple-digit moves in 8 out of the past 12 sessions, and of the 8, 5 have now been to the downside while only 3 have been higher. And another very late selloff into a closing Dow loss of 127 put the icing on the cake for the bullish case for the time being. And as so often happens when things turn to the downside, those television touts who cheer the market to the upside as they urge investors to buy, buy, buy while things are going higher, all of a sudden turn hesitant when the opportunity to buy the same stocks at lower prices presents itself, with such gems as “Well, I am not sure; let’s see where the correction ends; there is now too much uncertainty and volatility”, ad nausea.

Yesterday’s market action had to be one of the most bizarre patterns that I have seen in a long time as the Dow tried to make up for Tuesday’s downside disaster with a fast higher gap opening to a 119 point gain right out of the starting gate, which looked a little phony because other segments of the market were not participating, as for instance the Nasdaq went negative at 10am while the Dow was still higher but coming off of those bizarre early unsustainable gains, and breadth numbers were also negative even when the Dow was on its highs, so something was fishy about that Dow advance. Sure enough, the Dow turned negative as well by 10:45am, then slowly chopped around in a downward pattern before finally giving it up late for the second day in a row and closed with that 127 point decline as mentioned above.

Breadth numbers were just horrendous at a negative 1 to 4 ratio and the VIX was feeling it again on the upside with another large rise to 18.59, a gain of 1.52, and this put it right into a resistance area going back to its prior yearly highs in both February and April, which perhaps was a sign that things were getting a bit oversold in the near term.

How about those bond yields, which rose once again up to the highs of the year at 3.37% for the 30-year and 2.22% for the 10-year on the back of poor auction demand. And then there was another sharp drop in the Japanese stock market, once again caused by the rapidly rising yen, which rose all the way up to 96 versus the dollar. This resulted in the Euro rising a bit on the overall dollar weakness up to 1.333 despite gloomy news from that area as E.U. industrial production “unexpectedly” declined and how about this – Greece was officially cut to “emerging market” status by MSCI, which puts it at the same level as other economic powerhouses such as Burkina Faso and Tibet. Crude oil kept pushing higher for reasons that various energy market experts tried to pin on the weaker dollar, but as I have said so many times, it is in the interests of the oil companies to extract as much as possible from consumers during the summer driving season.

And what caused all of the downside misery was not the result of anything here, except that market experts will throw out the old “investors are concerned about the timing and extent of the Fed withdrawal of some stimulus”, because this then becomes an easy crutch upon which to lean, and then on days like today when the market does better, the “explanation” is that the better economic data overcame anxieties about the Fed’s intentions, and so this is what we are going to have to live with for the near future.

Last night was another nail-biter for those who watched the various stock index futures react to developments in Asia and then in Europe, as the Japanese stock market took another downside beating as the S&P futures declined by as much as 13 points at their worst levels and they had closed well below fair value as well, so this could have gotten ugly had they stayed there. And Japan closed with another huge loss, a decline of 6% to officially enter a bear market, but let it also be remembered that on May 22 it had risen by a mere 55% for the year and how is that sort of advance possible to sustain itself? Interestingly enough, this is the same day that our stock market topped out as well. Then the yen made another huge upside move against the dollar, down to almost 94, its largest three-day gain since 2008, to its strongest level in two months, but let it be remembered that their currency had also made a huge decline in the early part of the year as well, so how could both of these factors sustain themselves without moving in the opposite direction as well?

Fortunately, the stock index futures were already coming off of that panic-induced selling from Asia and got a bit of support when May advance retail sales rose by more than expected and weekly jobless claims declined as well, down 12,000 to 334,000. The 0.6% gain was the result of a surge in motor vehicle purchases in addition to home building materials (repairs from the freakish weather we have seen in various parts of the country). And the core-sales component, which strips out automobiles, gasoline and building materials, and which corresponds most closely with the consumer spending component of G.D.P., rose by 0.3% after a 0.2% increase in April. In addition, import prices for May declined as well, which is further evidence that inflation is under control.

The Dow opened with a quick decline of 42 points in order to satisfy those who wanted to sell at the lower levels and the S&P fell under its 50-day moving average, which is at 1610, down to 1608, which then becomes a “sell signal” for those who follow this nonsense, and for the second time this year they got short or sold out right at the lows, as from those lower fast starts, things immediately turned right back around to the upside, as the Dow started to chop higher and has accelerated a bit recently to reach a gain of 100 points at its best level so far, so just like yesterday when we had an intraday decline of more than 200 points from top to bottom, today we so far have seen a 142 point upside intraday reversal, and is this sort of jumping around what used to be known as investing, or is it just short-term fast money types of traders trying to pick each other’s pockets?

Breadth numbers are improving rapidly as the market has pushed higher and are currently at an almost 3 to 1 upside ratio. The VIX, which had gotten its followers all excited recently with its more than justified gains, is falling back down closer to reality as it ran into resistance at the levels mentioned earlier. It is currently lower by 1.74 versus the current Dow advance of 85.

Bond yields are lower, would you believe it, as the World Bank lowered its forecast for global economic growth down to 2.2%, less than last year’s 2.3%, and bond experts tried to explain it by saying that now the U.S. Treasury market has resumed its role as a “safe haven”, which of course will disappear on the next day that yields go higher.

The Euro is weakening a bit on the negative news out of that area, and gold is getting sold off after its recent gains because the thinking in that market is that today’s better economic reports will accelerate the Fed’s pulling back of stimulus, but it still remains in that trading range with good support at $1,350. Crude oil of course will find any excuse to rally and after a lower start down to $95 a barrel, is currently up to $96, sort of unchanged.

For whatever reason, the industrial cyclicals are doing better today (better economic reports?), and in a miracle of miracles, CAT, the worst Dow performer this year, actually has the nerve to be higher, and it is being joined by others in this family that have actually done better this year, and this group includes BA, 3M and UTX. Even AAPL has the nerve to be $1 higher after three consecutive declines this week as market makers will once again keep it between the strike prices that represent the largest participation on both sides, and this week the honor to lose their money belongs to the 450 call holders and the 425 put buyers, and this is an ongoing theme as this stock in maneuvered week after week, no matter what its price level is, in order to result in that outcome for those who think that buying options is a good idea.

Economic reports this week finish with: Friday – May P.P.I., May industrial production and capacity utilization, preliminary June U. of Michigan Consumer Sentiment Survey.

First quarter earnings for 2013 rose by 5% and the projection at the present time for the second quarter is for earnings to be just around flat, and then we will ostensibly see earnings advances of 4.6% for the third-quarter and 5.7% in the fourth-quarter.

The S&P trades at 15 times the projected 2013 earnings of $111. Earnings were $85 in 2010, $92 in 2011 and $102 in 2012. The estimate for 2013 is $111, a gain of 9%. The average P/E multiple for the S&P going back to 1954 has been 16.4 and it has been 14.4 for the last 10 year’s average.

After four consecutive quarters of negative G.D.P. growth, we have had 15 consecutive quarters of positive growth, starting with the third-quarter of 2009, every quarter in 2010, every quarter in 2011, and every quarter in 2012. G.D.P. rose by 2.2% in 2012, and is projected to increase by 2% in 2013, according to various surveys, with 2.5% in the first-quarter and then in the low 1’s for the second and third-quarters before a fourth-quarter acceleration to over 4%.

Donald M. Selkin

Don Selkin is the Chief Market Strategist at National Securities Corporation, member FINRA/SIPC, (NSC) and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, Associated Press}.