Market volatility is picking up sharply as traders react to headlines about the tax bills and to the likelihood that General Flynn will plead guilty -- and admit to discussing Russia with the Trump transition team. This is a classic example of the market selloff as uncertainty increases.
One of the hallmarks of this market has been its disinterest in news flow. Missiles, central bankers, economic reports, political battles and even mass murder have been ignored. In the last few days, this has been changing, as the indices have danced to tax policy headlines. The news that is hitting now is seeing the strongest reaction that we have had all year.
As I outlined in my opening post, the market has seen a major change in character this week with the rotation out of the big-cap momentum, technology and FAANG names. That is playing out further today, and is confirmation that the trends that have been in place are starting to deteriorate.
We are going to have some volatility as the Trump/Flynn story develops further but this is exactly the sort of movement that creates opportunity. I am not too worried about the overall market here but I am trading some Direxion Daily S&P 500 Bear 3X ETF (SPXS) .
I'm also focusing on setups in some individual names that are pulling back with the broader market on this news. Global Blood Therapeutics Inc (GBT) and Sangamo Therapeutics Inc (SGMO) , for example, are ones that I think can regain their momentum.
It has been so long since we have had these sorts of swings that it leaves many traders confused. They don't know how to trade a market that isn't always going straight up. They are so used to chasing momentum and automatically buying dips that it is unsettling when that pattern shifts.
This is the sort of market action that can create unusually good opportunities in individual stocks but you need to be selective and have discipline. This is the sort of action where astute traders have a big advantage.