Some Weakness Sets In

 | Sep 20, 2012 | 10:27 AM EDT  | Comments
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regi

This is the worst market action we've seen in some time. The major indices aren't even down 1% but breadth is better than 3-to-1 negative, and all major sectors are in the red. There has been no dip-buying interesting, and market players appear hesitant to rush in.

Since this is the first real pullback in a while, the psychology strongly favors some dip-buying. No one has been burned by buying weakness yet, and there is a very large group that has missed out recently and has been hoping for weakness to buy.

Dip-buying always sounds great in theory when stocks are strong, but it loses its appeal quickly when things start to breakdown and worry grows that maybe this is a top and not just a pause. Since this is the first pullback from highs, however, the chances of a total and sudden collapse are low. That doesn't mean throw caution to the wind, but don't be too quick to be aggressively bearish.

I've tightened up stops and made quick sales this morning, but I'm being opportunistic and looking for quick bounce plays. One speculative name I'm watching is Renewable Energy Group (REGI), which moved sharply early in the week and looks like it can attract attention again over $8.50.

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