In my prior post I commented that the indices, especially the Nasdaq and Nasdaq 100 ETF (QQQ) , were technically extended and looking quite frothy. While that had me feeling cautious I didn't expect to see such a dramatic intraday reversal so quickly.
The Nasdaq has reversed over 100 points intraday and many of the favored momentum names in the technology sector have been slammed. Lumentum (LITE) and Weibo (WB) are two example that I've been holding.
This is a good illustration of how reversals don't need any specific negative news to serve as a catalyst. What happened here was simply the recognition by a growing number of market players that this momentum was unsustainable. Once a few took profits, then others quickly followed and the selling gained speed.
As I commented the Nasdaq has gone almost straight up for 3 weeks with just one negative day along the way. It is still extended and the potential for further corrective action is high. At this stage in the reversal, most everything is dumped. Buyers will start sorting out the winners from the pretenders eventually but they aren't being selective in the selling at this point.
While there is some short turn pain in some individual stocks, this is much needed action and should make for some good opportunities as it develops.
Is this a major top? Maybe, but we don't need to make that determination yet. The key is to make sure you have a game plan for cutting positions before losses grow to big. We can worry about re-buying at a later time.