If the dollar really begins to bounce, this could suggest today's pullback will continue

The S&P 500 Index ended on a drastic drop of 18.8 points, but the index found a floor in the 1160 neighborhood, closed at 1165.9.  Stocks on Tuesday marked their biggest one-day drop since the market confirmed its rally seven weeks ago. Volume surged and most leaders stumbled.

Disappointment in the tech sector, China's interest rate hike and a higher dollar slammed U.S. stocks Tuesday. However, in Asia the market may have some mild consolidation. But I don’t think this interest-rate hike from China will have any big impact. It’ll attract liquidity flows into Asia, particularly Hong Kong and China. I think the people over there will see any correction as an opportunity to buy.

On Monday, the S&P 500 hit a new closing high for the current rally, but with the internal indicators at overbought level, I cautioned in yesterday's post that a failure of any kind could reverse a near-term trend and drive stocks down. Today's major jump in the U.S. dollar was the true bearish catalyst. The key to everything is the U.S. dollar, A lower dollar has been driving the market higher, but if the dollar really begins to bounce, this could suggest today's pullback will continue.

For the NYSE composite, Tuesday marked its fourth heavy-volume hit since the Sept.1 follow-through signal. Four or five distribution days over several weeks can signal that a market has topped. Leaders were mostly lower.

The next support will be 1050-1055, then 1040-1030,