A quick, sharp drop intraday had some market players wondering if long-awaited corrective action was about to start. The selling pressure didn't last long and there was a partial recovery the rest of the day with the indexes closing well off the midday lows.
Breadth ended about dead even and there were some pockets of strong speculative action in names like Stamps.com (STMP) , Schrodinger (SDGR) and Virgin Galactic Holdings (SPCE) . The market action did not reflect any major change in sentiment or increase fears that the character of the market is about to change.
Market players have been anticipating some sort of selling pressure for so long now that they are highly sensitive to any level of selling. Every dip that lasts longer than an hour raises some hopes and fears that maybe the market is going to finally start to remember that it can move in both directions.
As I discussed earlier, there are large moves in a number of other asset classes, such as the dollar, bonds, precious metals, and other currencies. Typically, major market corrections start when there are major shifts between asset classes. We will need to be very watchful for signs that this is occurring. The last major market drop was largely a function of the unwinding of the short volatility trade. Something structural like that is much more likely to cause a major downside move than a headline about the coronavirus or economic news.
For now, the trend remains positive, the price action is still quite good and there is no major shift in the character of the market. We need to stay vigilant, but it is still better to react to market changes rather than anticipate them.
Have a good evening. I'll see you tomorrow.