Technical conditions were ripe for a "sell the news" reaction on Wednesday, but it took some negative news headlines on Thursday to trigger the response.
It should not come as a big surprise that we are seeing weakness now, after a steady diet of positives recently. Concerns about the China trade deal are a good excuse for some selling, and the impeachment mess helps to create some uncertainty as well.
Breadth is running very poorly with around 2,200 gainers to 5,200 decliners, which is reflected in the relative weakness of the iShares Russell 2000 exchange-traded fund (IWM) . Bids have disappeared in some of the thinner names, and that is resulting in sharp pullbacks in many of the leading small caps.
Action such as this has a tendency to excite the long-suffering bears, who are trying to predict a market top. But there is nothing in the action at this point that this is the start of a topping process. It might be, but, as is often said, a top is a process and it is going to take more than a weak day after a big run to cause a change in market character.
My game plan at this juncture is to protect gains and wait for some of the recent gainers to pull back and find support. For example, we had good trades in SmileDirectClub (SDC) and PDF Solutions (PDFS) , and both are pulling back Thursday on lower volume. They may have more downside in the near term, but I'll be looking for entry points as they develop.
There are quite a few small caps that are similar and a number of them have earnings coming soon as potential catalysts. It should continue to be a good market for trades in individual stocks regardless of the macro issues.