Market Update: Down 4%, Almost Just What The Doctor Ordered It doesn't take too long to give up ground, does it? The market basically fell 4% on Monday, adding to an ongoing saga, and raising the question of whether or not the prior six weeks was an accident, or a real recovery.  We've got some perspective on the whole shebang today, and where it all may be going next.    Still Not Quite Bad Enough Just as a quick reminder, there's something I wrote on April 10th... "In short, I'm anticipating another pullback in the very near future. I hope it's one that's a little scary, and maybe even inspires a little doubt about recovery hopes. For the S&P 500, that would translate into a pullback all the way to the 800 area."  (I mentioned on the 6th that the precise landing spots for the S&P 500 would ideally fall between 790 and 797.) Well ladies and gents, as ugly as today was, the S&P 500 only sank to 832. We've only fallen about 5% from Friday's peak, and have only retraced about 20% of the huge rally we've witnessed since early March. In other words, this wasn't a decline that could be considered 'a little scary', nor was it a decline that fostered doubt about the past six weeks actually being the beginning of the next bull market. We may still have some more downside to go. And, I'll still be willing to buy in (again) the very moment it looks like that wave of selling is over. And where exactly might the market make this turn?  Did anybody else notice how Friday's high for the S&P 500 pretty much matched the peak from late January and early February?  Yeah, well, anyway ....using the same Fibonacci retracement levels discussed on the 6th, you can see the key Fib line is still at 797, and the 50 day moving average line is at 791 - just like they were back on the 6th. Those are the two most likely landing spots for the S&P 500 that (1) wouldn't kill the rally completely, but (2) serve as a nice fat piece of humble pie for the bulls. Anything less, and the buyers over the last six weeks could remain dangerously smug. As before, a slide back to those levels will indeed break other key support lines. It's a necessary evil though.  A move under 790 may be a little more evil than the market could stand though, so be wary if it happens.  On the 16th I mentioned the CBOE Volatility Index (or VIX) had finally broken under key support levels, hinting the bear had finally let go of investor confidence. My strategy was - as it is now - to worry more about what the VIX was doing during the next selloff than what stocks appeared to be doing. The impending selloff was begun today. So far we don't have anything meaningful from the VIX. It rose sharply as expected, but where it points next will tell us if Monday's dip was a blip or an omen. Some analysts would argue the VIX actually rant into resistance today at 39.6, and it wouldn't be a bad argument. That's where you'll find a falling resistance line extending all the way back to October's peak, as well as the VIX's 20 day moving average line.  However, I'll suggest we need to be willing to give the VIX a little more room to rise... as in 50-ish. We've seen the VIX peak around there a few times, and that's also where you'll find a more recent resistance line. As long as the VIX is contained within this space, I'm not going to sweat any further pullback. In the meantime, get ready for a wild ride... 1/4 of the companies in the S&P 500 report earnings this week.    What's With the VIX? (and other contrarian chatter) It seems like I dust off the VIX or one of my other contrarian indicators every few months or so. I don't do it more often because, frankly, there's no real reason to... these tools only become useful when greed and fear are about to peak, and the market is ready to reverse.  However, something I can forget to do along the way is explain to any newcomers why I'm such a fan of the VIX. Have you ever heard the famous warren Buffett quote "Be greedy when others are [most] fearful, and be fearful when others are [most] greedy"? Despite Warren Buffett have a dismal 2008 like most other investors, he's very right.... the market almost always zigs when the masses are sure it's going to zag. The premise is simply called contrarianism - the art of taking the minority stance when the majority is most sure of themselves. It's a practice I apply for one simple reason... it works the vast majority of the time. The VIX is one of those contrarian indicators. Another one I like to use is the ISE call option volume to put option ratio. Both of these indicators measure investor sentiment in one way or another. Though the daily data of these two indicators doesn't seem to be as useful as it once was, various moving averages of both data sets have proven to be very effective at spotting important turns in sentiment.  I also like to use the Conference Board's broad consumer confidence reading as a contrarian tool.  Care to know when we saw the second highest consumer confidence reading since August of 2001? It was the score of 111.9, reached in July of 2007... which was almost the bull market's peak. Do you know what the lowest consumer confidence reading ever was? It was February's reading of 25.3, announced on February 24th of this year. Eight weeks later the market had gained 12%!  These applications of sentiment are far from perfect, but clearly it can pay to bet against the crowd. Look for more of these looks in the future.   Bam! Our Stock Pick Procera Networks (PKT) Surges 28.8% Right Out of the Gate Wow. We knew the stock was undervalued when we recommended it last Thursday, but even we had no idea Procera Networks Inc. (PKT) shares were headed for a high-volume 28.8% pop on Friday. We really hope you acted on our advice.  If you didn't jump in, no big worries... our view was longer-term, and we think the potential upside is far bigger than the current price of 82 cents. We believe you can still get in at a decent level anywhere in the 80 cent zone.  The original suggestion and write-up is still available here, if you missed it the first time around. Good stuff.        Five Worthy Stocks Under $5.00 Be sure to check out the blog and home page on a daily basis now. We're adding a lot more commentary now, covering all sorts of stocks and ideas. For instance... On Monday we highlighted some major corporate names with stocks trading under $5.00 per share. Though there are over 5000 tickers with prices under $5.00 right now, these particular five were interesting simply because at less than $5.00 (much less in some cases), there's just not a lot more risk that can be priced in. In a couple of cases, the market appears to have factored in all the potential risk, but not given the stock much if any credit for the viable part of the enterprises they still represent. Go here to get the whole scoop.       Think Small, Think Innovation, Think Tech Our community contributors are putting things into high gear, focusing on the tech sector in their latest round of analysis.  Karen Riccio's article "Think Small, Think Innovation, Think Tech" makes a strong point about large cap tech versus small cap tech, comparing IBM, Microsoft, and 3M to their smaller brethren United Online, AllScripts, and GeoEye. The big growth drivers behind those three small cap names are examined in detail within the article.