We have had three straight big swings in this market in three days and the highest level of volatility since the Brexit vote in late June. Given the setup out of the tight trading range, it isn't too surprising to see this, but it is offering a major challenge for traders.
What is most notable about this action is that the stocks are moving in a very correlated fashion. Breadth has been very lopsided for three days, which tells us there isn't any major rotation taking place. The selling and the buying are across the board.
Often during the trading-range action in July and August, I wrote about how it was a market for stock picking rather than market timing. Now we are seeing the opposite. Individual stock picks are much more difficult and catching moves in the indices is working much better.
We have a few standouts today like Apple (AAPL) and a former Stock of the Week, NetEase (NTES) , but there are really no strong positive themes right now. Individual stock picking is extremely narrow. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
When we have this sort of shift, the best thing to do is focus more on index trades and stay patient while individual stocks are jerked around in tandem. I have a few names I'm looking to add as things develop, such as TPI Composites (TPIC) and BioTelemetry (BEAT) , but I'm going to wait until there is less correlation with the indices.
Watch the 2119 to 2128 area of the S&P 500, which is the key support level now. If we can hold that, maybe this technical breakdown will stay contained.