For weeks I've been writing about the poor action in individual stocks, while the indexes held up relatively well. That shifted Tuesday, and the indexes finally started to play "catch up" to the downside.
The S&P 500 and Dow Jones industrial average broke support at the 50-day simple moving average on negative breadth of about 1,600 gainers to 5,850 losers. New 12-month lows expanded to 200.
What was most notable about the action is that many stocks that have already been acting poorly were unable to find support. A good example is a recent initial public offering, Peloton (PTON) , which dropped for the fourth day of its four-day existence and saw the level of losses grow an additional 10%.
Among small-caps, there was some brutal action as bids simply disappeared. Bottom fishers are not interested in trying to catch falling knives and safes. Much of this action has nothing to do with the individual merits of the stock involved, but, as we all know, the market can remain irrational far longer than we can remain solvent.
The main thing that changed Tuesday was that there wasn't even a faint hint that maybe there might be some good news coming on China trade. That has kept a bid under the market, but with a holiday in China and no negotiations for a week or so there was no safety net.
The blame for the selling goes to a weaker than expected Institute for Supply Management manufacturing number. This number indicates a contraction is taking place and the gross domestic product growth is slowing. This economic slowing has been feared for a while, but it gained credibility now and will likely impact the Fed's level of dovishness.
Many individual stocks are already deep into corrections and it will them to find support if the indexes correct, as well. At this point, there is no indication that we should expect a bottom soon, but the good news is that this is going to create good conditions for upside before the end of the year.
Stay defensive and hold high levels of cash and you will be in good shape for gains when opportunities develop.
Have a good evening. I'll see you Wednesday.