The market overheated again on Wednesday, primarily due to a surge in semiconductors, and we are resting and consolidating today. Breadth is weak, at about 2 to 1 negative, but it is mainly shallow pullbacks so far.
The issue is whether this is just another day of rest like we had on Tuesday, or a warning sign of impending doom. As I discussed on Tuesday, it is very unlikely that this market is going to suddenly collapse. There is a huge supply of potential dip buyers, and with earnings season starting in earnest next week, optimism is quite high.
On a day like this, I try to avoid the market timing game and just watch my individual positions. They will be my primary indicator of market health. When they start taking out stops, then I'll take a more cautious view. There is no better market indicator than my P&L. If I'm losing money, that is a sign to be more cautious. It may sound simplistic, but it works.
Although it is choppy, I'm watching for new setups to develop. Ichor Holdings (ICHR) , which I highlighted yesterday, has solid follow-through and I like the way Remark (MARK) is developing. Cheetah Mobile (CMCM) is a nice-looking chart, and I've added to a position there.
This is a narrower environment for stock picking, but that can be a good thing, as traders gravitate toward the same names and create stronger moves. I suspect I will be making new buys as the day progresses.