The aggressive selling of momentum stocks that started Monday is continuing Tuesday morning. This time the indices are not holding up as well, but the selling on some names is becoming so pronounced now that there are traders trying to catch the falling knives.
The Innovator IBD 50 ETF (FFTY) , which is a momentum stock proxy, is down another 3% Tuesday morning after losing 3% Monday. A fall of 6% is equivalent to about 1,600 DJIA points. If the Dow was down that much we would have screaming headlines in the media and a "Markets in Turmoil" TV special on the schedule.
While there are some signs of stabilization as traders try to catch some oversold bounce, these buyers are most likely to be flippers and they will exit fast and kill the bounce tries.
The risk of further downside is very high here as traders trapped in some of these momentum collapses look for exits. Downtrends are mostly a function of failed bounces and lower lows and that is what developed very quickly the last two days.
My game plan is to be very slow with new buying. There are some small-caps I like but many are bidless right now and can easily fall further. My initial buys will be quite small. A few of the names I'm watching are Personalis (PSNL) , Recro Pharma (REPH) and Snap (SNAP) .
We have the first decent bounce of the day as I write but traders will be watching closely to see if the early lows hold.
Another wave of selling will hit hard if lows are tested again.