Downside momentum has been a rare beast in this market. Since the election in early November, the S&P 500 has only managed successive days of weakness a few times -- with the worst pullback occurring on the last three trading days of 2016.
We are see some selling pressure again today, with breadth running more than 2 to 1 negative. But, like all the recent pullbacks, there is no rush for the exits. There is no panic or great concern. In fact, the biggest concern seems to be how quickly to jump in and buy. No one really thinks they are going to be caught in a major reversal. They are confident they can escape when the big turn finally does occur.
It seems like it has been many years, but strong defense at the first sign of trouble used to give aggressive traders an edge. Avoiding downside is a great way to produce relative performance, but that requires that some downside actually occurs.
These days, if you play strong defense, you need to be prepared to change course very quickly. Take your stops and cut your risk, but be ready to buy back positions if the action shifts. There is no rule against rebuying a stock that you recently sold. Good stocks don't always behave the way that we'd like, and we can be forgiving by buying them back.
As I mentioned over the last couple of days, I've raised a substantial amount of cash by selling into strength -- and now I'm carefully managing the positions I have left. Sarepta Therapeutics (SRPT) , which I discussed as a bottom fishing candidates, continues to act well. New buy, Ultra Clean Holdings (UCTT) is acting as I had hoped. Read my column this weekend about how to play a chase like UCTT or Applied Optoelectronics (AAOI) .
I'm not confident that this corrective action is ending, but it is awfully hard to underestimate the ability of this market to bounce in the afternoon and into the close. It has been the dominant theme in 2017 -- and until that changes, we can't be too bearish.