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  1. Home
  2. / Investing

A Day for Resets

I'm more inclined to do strategic buying in this sort of market action rather than more aggressive selling.
By JAMES "REV SHARK" DEPORRE
Jan 21, 2021 | 01:08 PM EST
Stocks quotes in this article: SOLO, FUV

Strong uptrends require some pullbacks, consolidations, and resets as they continue to work higher, but it is important to distinguish between the indices and individual stocks. This has been a great market for stock picking recently, and we are now seeing some 'resets' in the individual stocks that have performed best while the broader market experience sharp rotation.

What is most notable about the action is that the S&P 500 and Nasdaq are flat to up while breadth is quite poor at 2 to 1 negative. Many individual smaller caps are resetting while a small group of big-caps that have lagged are finally playing catch-up.

The challenge of this market action is that it is very easy to believe that the weak action is the start of a much deeper correction rather than just a healthy reset. It can be quite difficult to tell the difference between just a routing pullback and something more serious.

The key 'tell' is the intensity of the selling. Are market players selling into the drops without regard to fundamentals or chart patterns? Is there the aroma of fear wafting in the wind? It isn't easy to say in most cases, but when there is highly correlated selling, and bounces keep getting sold, then it's time to use more caution.

So far, this action looks like healthy consolidation to me. That doesn't make the pullbacks less painful, but I'm more inclined to do strategic buying in this sort of market action rather than more aggressive selling.

One name I just added is Electrameccanica Vehicles (SOLO) , which makes 'cute' three-wheel electrical vehicles. The company is opening retail outlets, and the first sales are starting to occur. A similar stock, Arcimoto (FUV) , is breaking out today, and I'm looking for SOLO to follow.

The indices are losing steam again, and breadth is weak, but I'm calling it a reset at this point and am not too concerned.

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At the time of publication, James "Rev Shark" DePorre was Long SOLO.

TAGS: Investing | Markets | Stocks | Trading | Electric Vehicles

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