If you are a trend follower or momentum investor, you always have to be looking for a change in market character. When the action shifts, you have to act. It doesn't matter if there isn't any good reason for the shift. Ultimately, the only thing that matters is price and we must respect that above all else.
It is fairly unusual in recent years to have a V-shaped move like yesterday fail so suddenly and so completely. The typical pattern is to keep edging higher on lower volume as fear of being left behind kicks in. We have had a few failed bounces in the last few years, but this one is much more extreme than most. If the market closes weak today, it will be marked with an exclamation point.
Downtrends are a product of failed bounces. When a correction takes place, what we repeatedly see is hope that a bounce is going to mark a bottom, but then the indices roll over again and make a lower low. Even when we have seen lower lows, they haven't lasted very long. Those dip buyers have had no fear of a major correction.
It is ugly and it wouldn't be a bad thing if we sold off even more. The potential bargains are slowly developing, but the selling still looks fairly orderly. I'm not seeing wholesale dumping without regard to prices. There are still underlying bids, but this is a change in market character and that means we better be ready to see if this plays out further.
Here are some names on my shopping list: Acacia Communications (ACIA) , Facebook (FB) , Aratana Therapeutics (PETX) , Global Blood (GBT) , Line (LN) , Fabrinet (FN) and Reata Pharmaceuticals (RETA) . (Facebook is part of TheStreet's Action Alerts PLUS portfolio.)
