For most of August, I have maintained a positive view of the market due to the strong action in underlying names. We've had good momentum in many places and selective stock picking has worked well. The indices may have been mind-numbingly flat, but the good action in many individual names made up for it.
Today we experienced a reversal in that action. The indices managed decent gains but the action in a number of individual stocks, especially momentum names, was quite poor. The hottest stocks in the market lately have been Acacia (ACIA) and Twilio (TWLO) . Both reversed hard as did others like Yirendai (YRD) and Tesaro (TSRO) . If you have been riding the big winners, you likely suffered some losses today despite the green indices.
There was some decent action in secondary, small-cap momentum names and small-caps in general outperformed, but it was not the same healthy action that has been treating us so well for so long.
Another unusual thing that occurred today was that the S&P 500 closed almost exact at the lows of the day. This is only the second time in months that has happened. Last week when we closed at the exact lows, we shrugged it off and rallied over the next couple of days.
I don't want to make too much of the fact that momentum names were hit today. They were due for profit taking and many need to reset. Some bears will use this as evidence of a top, but the market is unlikely to see any significant change in trend in front of Janet Yellen. Once we are past the Jackson Hole speech, the danger of a major trend change will be much higher.
It was a poor day for many stocks, particularly momentum names, and that is important. It is a warning sign that we need to take account of, but it isn't at the level yet that we should be thinking a major change in character is occurring.
Have a good day. I'll see you tomorrow.
