While this is some of the worst action we have seen in a very long time it should not come as a major shock. This is the nature of markets. The indices were badly extended and a correction was inevitable. It was impossible to time when it would occur but the price action has been deteriorating since Monday and the pressure on bonds combined with a 'sell the news' reaction to earnings created good conditions for a pullback.
The question we need to focus on now is what will happen next? Is this the start of a major downtrend or just some overdue corrective action that will run its course fairly fast?
My bet is that this is not the top. I believe we will see a pretty good bounce and then enter a trading range. The action today is creating some real fear for the first time in a while and it should help to setup some rebound action. The issue is timing and I'm not acting on that belief at the moment.
The best thing you can do right now is work on shopping lists of potential buys. I am looking particular hard at stocks that have not yet reported earnings but that are being knocked down with the overall market.
A good example is Ichor (ICHR) which has already preannounced strong numbers and good guidance but won't report until February 7. I'm also taking advantage of the pause in Twitter (TWTR) to add back shares yesterday and have started a new position in Viking Therapeutics (VKTX) .
Right now many thinner small caps are bidless and have no support. They can fall further and I'm in no rush yet to add. A good example is HTG Molecular Diagnostics (HTGM) which was a recent Stock of the Week. This looks like a solid name that will come back and want to build that positions.
I'll be monitoring many small caps carefully and expect that many will see good bounce action next week.
