Overbought market conditions are finally giving away to some selling. Breadth is still slightly positive and the indices have minor gains but there are some pockets of weakness in some of the best recent performers such as biotechnology and semiconductors.
The pullbacks can be very abrupt and it is easy to give back gains quickly but when you are riding a wave of momentum as we've had lately it is inevitable. Typically these dips are severe enough to make the bulls worry about and reset sentiment which will then lead to support.
The last pullback was on December 2nd and 3rd when the China trade issue was in play, so a pause here is not a big surprise. The issue is how quickly dip buyers will start to act.
As a momentum trader, my style is to stick with the trend as long as possible and then take some losses when stops trigger on a day like this. I don't expect to make money when a turn occurs but I don't expect to take major losses either as my stops will be quite tight.
After taking some stops I'll then start to look for new names to accumulate. One name I started accumulate prematurely this morning is NeoPhotonics (NPTN) . I still like the chart and have added a couple of times to my initial buy this morning and will likely add more as it develops.
A little shakeup is a good thing but this one is not really visible in the indices so far. It's the best groups that are getting hit which tells us that it's just some routine profit taking and not a sudden fear or a market collapse.