Brutal Reversal and Finish Put Market in an Ugly Spot

A brutal intraday reversal trapped some early buyers who were hopeful that President Trump was looking to soften his stance on China investment in U.S. firms. The futures were looking poor overnight but an early headline pushed the indices into the green to start the day.

The buying continued for about an hour until a tweet by Larry Kudlow warned that Trump was not reversing his stance. That caused a quick reversal but the worst part of it was that the selling momentum picked up and the market sold off steady and closed near the lows of the day.

Breadth went from positive to around three to one negative. There was some very ugly reversals in high momentum names such as Amazon (AMZN) and Netflix (NFLX) . Nothing much was safe by the time the closing bell rang.

Technically there is no way to spin this action as positive or even benign. This was just downright ugly. The intraday reversal is never good but the poor breadth, a close at the lows and the lowest close in the S&P 500 since May suggests that there is more downside to come.

The market warned us starting last Wednesday when the frothy FAANG action was causing some bulls to hyperventilate. Since then it has been a constant struggle for the indices and Wednesday the action was probably bad enough to proclaim that we are in a full-fledged downtrend. There is little support right now and the dip buyers have lost their nerve.

When the action is this poor it is best to remember the first rule of holes: When you are in one, stop digging. If you are holding stocks that are acting poorly, sell some and protect your capital. It is far more important that you live to fight another day when conditions are better, rather than stick with stocks that are mistreating you.

Have a great evening. I'll see you tomorrow.

At the time of publication, Rev Shark had no positions in any securities mentioned.