For weeks, market players have been enjoying good underlying action while the indices traded with a very slight positive bias. Yesterday, there were some hints that momentum was cooling and today it kicked in with a vengeance. This time the indices were hiding some very ugly action under the surface.
We started off this morning on a downbeat note, but it was a comment by Hillary Clinton about unjustified price increases by Mylan (MYL) that really triggered the downside momentum. Direxion Daily S&P Biotech (LABU) , the 3x leveraged biotechnology ETF, went from positive to down over 12% in a blink and other momentum stocks, already wobbly, lost their footing as well.
Ironically, the indices failed to really indicate what was going on, but this time it was the reverse. They understated the damage that was done and, of course, we had a sudden flurry of buying in the final minutes to take us off the lows.
This sort of nervousness in front of a major Fed announcement is nothing new. We've seen worries about the possibility of a more hawkish Fed cause a breakdown and then we jump right back up when the announcement is made even if it isn't that dovish. The only recent time we have sold off on the Fed is when an interest rate hike was not announced when it was widely anticipated.
Many stocks have made big moves recently and we could certainly use some backing and filling to help reset some good entry points. Let's not forget how tenacious dip buyers tend to be. This market has consistently punished us when we prudently played defense after some poor action.
The bears are going to be warning us that the topping process has begun. It certainly is possible, but Janet Yellen is coming up quickly and the Fed news seldom disappoints this market when it is struggling.
Have a good evening. I'll see you tomorrow.