For a couple of weeks now the market has been hinting at underlying problems. It hasn't been readily apparent in the major indices but Monday the problems became much more visible. Rotational action has been covering up the issues in individual stocks and today the FANG group sold off en masse and that money could not find any place else to go.
The Dow Jones Industrial Average did hold up relatively well and breadth was not that weak, with about 3,000 gainers to 4,000 decliners, but there were twice as many stocks hitting new 12-month lows compared to the number hitting new 12-month highs. If you were looking for some place to hide you had great difficulty.
The important issue now is whether this is the panic selling that helps to bring stocks to good support levels or is this just the first wave of selling that will pick up steam if a bounce doesn't occur very quickly?
At this point traders have little choice but to assume that the technical damage that is being done will lead to more selling. There wasn't anything in the action Monday to suggest that this is a washout and that the worst is over.
Tuesday night Apple (AAPL) reports its second-quarter results and the reaction to that report is going to tell us about the health of the market and big-cap growth names in particular. Expectations have dropped after the reaction to Amazon (AMZN) . Still, you have to wonder if market players will be willing to chase a report given what is going on in the FAANG space.
The action today did not look like panic to me. It was orderly selling but there weren't many willing bidders so many stocks fell into a black hole. This is bear market-type action although this is not a bear market so far. The lack of dip-buying and the ineffectiveness of support levels is what happens when sellers take control.
The good news is that we need this sort of action periodically to set up the next crop of opportunities. We just have to protect capital and stay patient as the process takes place.
Have a good evening. I'll see you Tuesday.