Sharp rotation occurred out of the gates this morning with financials and retail continuing their moves, now aided by some healthcare/medical stocks. Indeed half of DJ30's gains were gratis UNH with its 3.14% gain.
While some went up, others fell. Chips were on the chopping block with those showing volatility of late selling off hard. Large cap NASDAQ sold as well as FAANG. Money moved out and they moved down.
Somewhat ironic given DJ30 is quite extended by its own historical terms while NASDAQ was not extended per its pattern. But, when the biggest mega caps were sold, NASDAQ was driven lower with NASDAQ 100 in the lead.
SP500 -0.97, -0.04%
NASDAQ -87.97, -1.27%
DJ30 103.97, 0.44%
SP400 0.46%
RUTX 0.38%
SOX -4.39%
NASDAQ 100 -1.73%
New highs for DJ30, RUTX, SP400, indeed, easy new highs. At the same time SOX plunged to test the 50 day EMA on the session low. It bounced, but damn little. NASDAQ bombed to the 20 day EMA where it tapped and bounced as well; not much damage at all. Surprisingly, NASDAQ 100 showed the same kind of action. Of course NDX was well above the 10 day EMA when this started, so there was some cushion.
That kind of action in the indices, i.e. holding clear support even with selling on those that were down, is one reason we did not get the panics that we heard from some brokers and floor traders today. There are other reasons discussed below.
We did exit some positions that broke support and did not recover much if any lost ground. We did not buy any new positions upside or downside either. Why not? Because on these big, sweeping move sessions two things can happen. First, it can just be the start of moves that continue without hesitation. Second, often the case in such moves, such a selloff is at least an attempted buy for the BTD mentality that has held for so long. It may not recover, but you can get a counter move in response (Newton's third law comes into play a bit) that gives better exits.
Moreover, for this market in particular, this kind of rips lower by the big names and big upside moves by others just don't stick. Look at September when a very sharp selling session hit 9/25. That selling was strong and on volume, but it lasted one session. FB sold $7.50, almost exactly what it sold Wednesday. AAPL dropped that day as well as part of a week of selling. NFLX dropped 9 points versus 11 Wednesday. GOOG dropped 21 points comparted to 25 points Wednesday. They sold but rebounded. Thus it was worth being patient on those holding near some support, waiting to see if they rebound Thursday and Friday as before. It is no guarantee, but again, it is in line with this market's history.
As for the upside, well, we will see if there is some retrenchment/backfilling after a lot of gaps and surges. Again, maybe they just keep on running, but most of the time these breakouts give you a test that is one of the best entry points you can use to enter. That prospect appeared better than chasing gaps and early surges, and you watch for those opportunities over the next few sessions.
Again, some serious rotation that pushed positions such as BAC, MMM, DDS, FLR, TELL, TLRD, TREX nicely higher again while it pushed stocks such as AMAT, LRCX, BLKB, VMW, FLEX, CREE, FB, NFLX and others lower. Now watch to see how the 'day after' treats them. Is it a pause that does nothing to alter the downside momentum? That can lead to continued moves though in September a pause the following session led to a recovery of the trend. We will see which emerges over the next couple of sessions, watch for setups either way, and take advantage of them for new positions and for perhaps exiting more positions if those under pressure today come under pressure again.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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