For the second time in the last few days the S&P 500 spiked upwards on "good" news, only to be confronted by an onslaught of selling. The bears are certainly waiting to pick the right moments to rain on the parade.

Whether this shift in sentiment will deliver on the much anticipated September correction remains to be seen and, in my opinion, will be much influenced by other inter-market forces such as the performance of the US dollar and crude.

However, yesterday’s selling was very persistent and had the flavor of not being dominated by the HFT operations that have been a new "feature" of trading during the summer months.

We need to find out if the HFT algorithmic bias can deal well with a market that seems to no longer rejoice on "good" news. Rather it may have to get used to interpreting information which seems to be conveying increasingly awkward ambiguities now facing large asset allocators:

1. The slump may be ending - but what if the recovery is more anemic than many are assuming?

3. The toxic assets are still sitting on balance sheets and some banks want to raise more funding.

4. The Chinese economy may not be as robust as previously thought and there are concerns about domestic bubbles following a super stimulus in early 2009.

5. Will the new government in Japan have the same appetite for supporting the US dollar and Treasury market?

6. In more general terms, there is the so-called Fed exit strategy issue which also plays into the related question to #5 - when QE is phased out who will the be the principal participants at Treasury auctions?



The Hang Seng Index (HSI) has almost retreated to the 19,000 level I discussed here last week.



The Russell 2000 (RUT), composed of the more high beta stocks, as always responded with more emphasis than the broader indices and the 540 level could be a near-term target for the bears.



Equities, which were pushing the envelope during August as far as "toppiness" was concerned, got an attack of vertigo, the US dollar gets a bid and the commodities sell off. Asset classes are becoming ever more inter-connected which, I would suggest, is not a good sign for long-term market liquidity.



Here is my comment from August 27.

KBE, the exchange traded fund which tracks the KBW Banking Index, is suggesting that, without any obvious earnings sizzle to inspire buyers, the banking sector may have already priced in a lot of the more optimistic mood music.



PBW, an ETF which tracks clean energy stocks has broken below key support levels.



VXX, which represents a short-term play on heightened volatility could be about to break above a long standing downwards trend-line.,



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market.