The speculative fervor that traders have been enjoying recently cooled off markedly this morning. It was downright frothy yesterday as the number of new 12-month highs passed 800, which is an extreme level.
A couple of strong reports from Alarm.com (ALRM) and Fabrinet (FN) are being sold, which is not a good sign, but it can be healthy to trap the bulls now and then. Breadth is running about 2-to-1 negatives but we already have seen dip buying and still have about 150 stocks hitting new highs.
If you have been enjoying the recent momentum, it is imperative to take steps to protect recent gains. You should expect to give some gains back when you are chasing strength, but hopefully you have built up a cushion and are still ahead of the game. The opportunity cost of sitting on the sidelines has been huge lately, but that doesn't mean we should be blindly bullish.
I stopped out of a couple positions and haven't made any new buys so far today. TPI Composites (TPIC) , which I've been discussing recently, had initial analyst coverage with targets between $20 and $22. The stock is hitting new all-time highs this morning. My Stock of the Week, Netease.com (NTES) , continues to act well into its earnings report tomorrow night.
I am still looking for buys but it may require patience as stocks reset after recent frothiness.