Happy hump-day, friends and fellow traders. How'd the second day of selling go for you? It could have been worse, all things considered. Investors were less than thrilled with last quarter's results from Apple (AAPL), and in that it's the biggest company in the world, if it's deep in the red, the market probably will be too. But, it ended up not being that bad. I'm kind of surprised. This doesn't really change my near-term bearishness though. In fact, in a routine look at some things I examine every single day, I've got yet another reason to expect this budding breakdown to end up going somewhere south of here before a trade-worthy bottom is hit. We'll get to that last today. The first thing I want to do is follow-up on the can of worms we opened yesterday. Financial Stocks: Buy or Sell? Remember in yesterday's newsletter we took a look at the each sector's earnings growth rates (trailing and projected)? While that was good information, it was just the beginning of something bigger I've wanted to do for a while.... a deep drill-down into each sector's earnings trend, momentum, and valuation. Today we're going start the process, with a look at the financials. Here's the S&P 500 (large cap) Financial Sector Index, with earnings, and with a trailing P/E level. You know what? They're holding up better than the overall market, and although earnings are a little hot and cold, the bigger earnings growth trend is still solidly bullish. Best of all, we can see these stocks are not only valued at a lower P/E than the market's 19.1, but they've held a steady valuation for a long time. (The arrows are Q2-2015's and Q2-2014's earnings levels.) Given how these stocks are hitting record highs today and the broad market isn't - and yet this index isn't wickedly overbought - I think we can see this chart as a long-term bullish one. In any case, on a hunch I ended up gathering the same data for the S&P 400 (mid cap) Financial Sector Index. Same story. That is, the valuations here are fair, the earnings trend is compelling, and the index's uptrend - though solid - isn't alarmingly overextended. Honestly, I had theorized the mid cap financials would be the better looking of the two. But, I was wrong. The large cap financials still look better. There was a reason I did this exercise with the financial sector indices first - they're the most vexing right now. Though both the mid caps and the large caps are going to post lower year-over-year earnings for Q2, the longer-term trend will probably get back into a bullish gear by Q4... maybe even Q3, if we can get enough earnings beats for the current quarter. They've just been bugging me though, as these stocks have been quietly leading the market since hitting bottom in late January. Now that we've taken this look though, we can better understand (and justify) the strength. Just for the record though, I'd much rather buy into a sector trend coming off a low rather than near a high. But, we like relative strength too. We'll try to get to this same analysis for the rest of the market's sectors in the near future. More Real Estate Awesomeness If you've been reading the SCN newsletter for at least a month then you'll already know we're big home construction bulls now. The data has supported this thesis for a while, and we got another supporting piece of evidence today in the existing home sales figure for June. The pace reached a multi-year high (again) of 5.49 million. For perspective, here's the chart along with inventory levels and the FHFA's home price index as of May. All three pieces of data were released this week. The only information we haven't heard yet for June is new home sales, and those numbers will be published on Friday. We'll look at the trend in a little more detail then, but here's the chart as of the most recent data. It looks pretty darn solid. I know we keep saying it, but it is what it is - the real estate segment of the economy is doing as well as it can do despite economic drags on other fronts. Sales are strong and supply is still limited for new homes as well as existing homes. Right on Cue It wasn't a textbook-perfect second day of a rollover, but as John Monroe pointed out to Elite Opportunity members in his newsletter today, Wednesday's goofiness makes a little more sense when you look at what commodities and bonds did today. But, we'll have to save that discussion for another time. For today we only have time and room for a look at the stock market and its breadth and depth... which not only explains why the rally effort fell apart when it did, but suggests stocks still have further to fall even before hitting a near-term bottom. Here's the chart of the S&P 500. Lower low, lower high, and lower close. That's pretty much right on cue. The odd part is how the VIX didn't follow suit with a similar upward move. I don't think the VIX's failure to move higher is a big deal, meaning I don't expect it to be any hint of an impending rally. We'll see. That's not the focal point of what I wanted to show you today, though. I want to give you an updated version of the up/down volume and the advancer/decliner chart (NYSE) we take a look at when there's something worth pointing out. There's something worth pointing out today, like the fact that the rally we saw over the course of the prior two weeks may have gotten off to a good start, but it fell apart pretty quickly even before it was done coasting back to the recent ceiling around 2133. More than that, we can see the bearish volume and decliners started to swell again even before the S&P 500 hit its peak and then rolled over. Given the momentum of the breadth and depth data, we can't assume the worst is over. With all of that being said, the more I think about it and the more I look at how everything's unfurling, the more I'm convinced the 200-day moving average line around 2070 is the make-or-break point. We tested it once and passed the test by virtue of the sharp bounce. We could easily test it again though. And, with a few months of non-net-movement already putting investors in a frustrated state of mind, the next stumble could be the one that takes hold. It all depends on how we respond when we get to 2070 or so. Honestly, I'd actually prefer a pullback now so we can set up the usual fourth quarter bullishness. If we start the fourth quarter already overbought and overvalued, it gives us nowhere to go. I'd rather set up some movement later with a pullback during Q3 than simply remain parked where we are now. In the meantime, let's just see if the S&P 500 can break under its short-term moving averages around 2100. This is still a day-by-day matter.