The character of the market action started to shift on Tuesday afternoon when there was a sharp intraday reversal as the action became very frothy. In addition, meme trading and targeted short-selling became much more aggressive, but it is now slowing following a sharp reversal in Bed Bath & Beyond (BBBY) .
A shift in market character doesn't happen all at once. It takes some time to develop. When there has been a very strong run, there is a big supply of underinvested bulls that are anxious to buy weakness. This will keep the market sticky to the upside for a while, but if mediocre action continues to build, then the dip buyers will back off quickly.
One change that started yesterday is there is weaker action under the surface. Breadth was quite poor on Wednesday and is running negative again today. This is largely a function of small-caps losing bids as liquidity starts to contract.
There hasn't been much talk about negative seasonality recently, but we are now in the dog days of summer, and this is typically when we have some of the lowest volume days of the year. Bids have a tendency to disappear, and it hurts smaller stocks the most. Big caps like Apple (AAPL) have really been holding up the market lately, but there is some slight weakness there today.
So far, the bears have not really been able to dig into this market, but back in June, we had a bit run and then a period of consolidation that eventually resolved itself to the downside after about nine days of trading. I'm watching for a similar pattern to develop again and expect to see some choppy action for a few more days.
I started a new position in shipping stock ZIM Integrated Shipping Services (ZIM) yesterday and am looking to add to that, but I'm primarily just making some small trades and managing existing positions quite tightly.