If there is a weak close today the Nasdaq 100 ETF (QQQ) will have two successive days with losses of more than 1% for the first time since June 2016. That selloff resulted in a very strong V-shaped bounce that took the market straight up during the month of July.
One big difference between that selloff and the current one is that the June pullback was caused by the Brexit vote in the UK. There was some panic selling on the surprise news but the reversal was very energetic.
The current selloff is coming on no specific news which makes it less likely to boomerang so quickly. News is what the algorithms use for triggers and when there is no trigger it is more likely that the trending action will continue.
Breadth was positive at the open this morning but has turned negative and is now running about 2900 gainers to 3800 decliners. We still have 226 new highs which isn't bad considering the QQQ action. The indices are trading more in tandem today which isn't surprising but may not be a positive.
So far there has been limited bounce action although the QQQ is seeing some support. It is likely that the bears are sensing that they may finally have an edge and I'm looking for them to be a little more aggressive to fade bounces.
I'm not disappointed to see this negative action. We've needed it to shake this market up a bit. It will lead to some news opportunities but if we bounce back too fast it is tough to put much money to work. The best course of action is to identify some buy candidates in advance and be ready to pounce quickly as they develop. Applied Optoelectronics AAOI is one I'm watching.