Many traders were looking for an emotional gap-down open this morning to set the state for a strong tradable bounce. Things did look quite panicky overnight but as the open approaches the computer algorithms anticipated the "buy the dip" trade and had the indices flat at the opening bell.
There was some additional upside after that but the obvious trade had disappeared and the indices struggled the rest of the day with a blast of selling in the afternoon to help keep the misery level high.
The DJIA is now down 1,380 points or 5.22% in two days but the average stock has done even worse recently the Russell 2000 ETF is down nearly 9% in nine days and the Nasdaq 100 (QQQ), which is home to the FAANG favorites, is down 8.8% in six trading days.
Bonds bounced back up today and can't take the blame for the poor action but that hasn't really been the main catalyst for the selling. This is technical action that is exacerbated algorithms that are now reversing much of what they have been doing for months. There isn't any major change in fundamentals or any major news. It is just the market going through a normal cycle of ups and downs.
This sort of action causes much talk about how a major change is occurring and that further disaster awaits those that are sanguine about this ugly action. I'm not convinced that is the case but there is little choice but to take defensive measures and to make sure that we are holding a high level of cash.
What I'm waiting for are some signs that the big macro moves are slowing and the stock picking will start to matter. Currently it is a waste of time to try to buy select stocks as they are being jerked around by the indices to such a great degree. Fundamentals do not matter and there aren't any good charts to be found. At best we have some oversold setups that might produce a bounce soon.
The market is undergoing a correction. It isn't anything very complicated but it does evoke some stronger emotions. That will serve the opportunistic traders will at some point but while it plays out, patience is required.
Have a good evening. I'll see you tomorrow.