Market Gets Clobbered — And This Time Sellers Have No Interest in Rotating
Aggressive selling left few stocks unscathed, but one of the most interesting aspects of the action is the wide disparity in technical setups. Here's where the better opportunities lie.
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Growing fears of a recession, the sale of a substantial stake in Apple AAPL by Warren Buffett, and the blow-up of the yen carry trade triggered a day of intense selling of securities around the world.
Stocks and indexes opened substantially lower to start Monday, managed to bounce back at midday, but then faded again into the close. After the dust of the demolition had cleared, the Nasdaq 100 QQQ had lost 2.9%, the Russell 2000 IWM was down 3.2%, and the S&P 500 SPY was hit for a loss of 2.9%. Breadth was extremely poor, with just 980 stocks advancing while 8,500 were down. New 12-month lows ballooned to over 1,000 names.
The action reflects aggressive selling of indexes and ETFs that leaves few stocks unscathed. The selling has little to do with the merits of individual stocks but is a reflection of panic and a rush to raise cash due to general market and economic conditions.
Big-cap technology is leading the action to the downside, but unlike two weeks ago, there was no rotational action. Sellers have no interest in reinvesting their proceeds right away.
While the selling was extremely intense, it was not sufficient for a washout. It is very likely we will see a strong snapback fairly soon, but the issue is that we will likely see more downside before that occurs.
There is speculation that the Fed may rush to cut rates, but that may just be hopeful thinking by bulls at this time. The Fed typically doesn’t rush to respond to market volatility and will likely be hesitant to send the message that it has made a policy mistake.
From a trading standpoint, one of the most interesting aspects of this market action is the wide disparity in technical setups. The charts of the indexes look very poor and appear to have more downside, but that is primarily due to the Magnificent Seven and big-cap technology. Many individual stocks are already near substantial support levels and have much less risk.
It will take some time for the market to digest the news flow and for the volatility's reverberations to subside. If we stay patient, the charts will develop, and some lower-risk entry points will develop. However, it will be a challenging trading environment for a while.
Have a good evening. I’ll see you Tuesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
