Shark Bites: Pullback Isn't Over

 | May 18, 2017 | 2:00 PM EDT
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Stock quotes in this article:

IWM

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aaoi

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glyc

The market drop yesterday had traders excited about the possibility of increased volatility. The pattern lately has been a lack of further action. After a sizable move, the market has quickly gone flat again.

This morning we did have a bounce, but given the size of the drop yesterday it isn't very energetic. The indices are up about 0.25% after a drop of 1.77% in the S&P 500 and 2.7% in the Russell 2000 ETF (IWM) .

The good news is that the indices are staying above the intraday lows, but breadth is slightly negative and there doesn't seem to be too much concern that we are going to go straight back up. The longer the indices can hold steady, the greater the likelihood that buyers will inch back in, but so far this is not very convincing.

Downtrends are made up of failed bounces. It is when bounces fail a few times in a row that negative sentiment starts to build. Instead of sticking with longs because of confidence that there will be a bounce, there is a greater tendency to sell into strength to avoid being caught in another rollover.

I'm using the action today to do some repositioning. I sold a few things that bounced like Applied Optoelectronics (AAOI) and will likely jump back in some index shorts if there isn't better action in the final hour of trading or if the intraday lows are retested.

I don't see any reason to be confident that this pullback is completed. This is weak bounce action and illustrates that market players are not overly optimistic about shaking off the recent negatives.

I sold a partial position in GlycoMimetics (GLYC) , which I mentioned as the star of the day, but may have to buy it back if the stock continues to hold up.

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we'll take this nice winner off the table SOLD ADSK AUG 105 CALL AT 9 (in at 4.45)

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