It is miserable trading action again Tuesday, but a few small caps are looking washed out while others continue to sell off hard.
Breadth is running 2,700 gainers to 4,900 decliners, there are only six stocks on my scans that are up more than 10%, and the number of stocks at new 12-month highs is contracting fast. The S&P 500 is hitting new intraday lows as I write.
A good example of the misery of this market is Roblox (RBLX) . This was a hot direct offering in a seemingly strong sector, gaming, and the company had revenue growth of 110% in the quarter ended December 2020. Analysts were largely positive on RBLX, but it is caught in the selling that is hitting so many stocks right now. There isn't any new fundamental development here. The problem is that we are experiencing pockets of bear market action, and RBLX is caught in one now.
This is a stock that I think will do well when we have better market conditions. As the father of two teenage boys, I'm more familiar with Roblox than I want to be, while also impressed with some of the things it offers.
This is a stock I want to own when the market acts better, so how do I go about doing that without suffering painful pullbacks while I wait?
First, I took some stops this morning when it rolled over again. I now have a smaller core position that I want to eventually add to. I'm not going to do that into the teeth of the decline. I'm going to wait and see if the price action starts to improve.
The key to buying is to not focus on catching the low but, instead, to focus on putting money to work when the market is acting better, and the stock starts to demonstrate that it has support. If I have to pay higher at some point in the future, that is OK. My goal is to avoid endless adding to a stock that is in a downtrend.
There are many other stocks like RBLX right now -- and they are causing great pain to those that are convinced they are holding good stocks that will be appreciated again at some point in the future. Just keep in mind, if you do sell, there is nothing that prevents you from buying back. Sometimes just doing something, even if it seems suboptimal, is the best way to reduce stress.