The corrective action that began last week continued this week, but there are some signs of support.
Most notably, all the major indexes broke below the lows that were hit on Tuesday, following a strong bounce on Wednesday. But after the sell stops were triggered at the lows, the indexes reversed and managed to close about the Tuesday support level.
This sort of washout and reversal action is a technical positive and it helps to remove weak holders that were concerned about technical support and replaces them with new buyers that have a more attractive cost basis.
Another aspect of the action that has been positive all weak is that the most severe selling pressure has occurred in the big-cap technology names. The Nasdaq 100 has seen the most pressure and the FATMAAN tech names have been the laggards. Typically, when leadership names are leading to the downside, they drag everything else down, but there has been some good relative strength in secondary stocks. I've been actively trading special purpose acquisition company stocks all week and it is hard to tell from the action in that sector that the indexes have been weak.
The most positive spin on this action is that much of the market never was that extended and is now in even better shape technically. The FATMAAN names have been in a world of their own for a while and now they have finally come back down to earth. They are still quite extended fundamentally and technically, but not nearly as much as they were previously.
We are entering a tough time of the year seasonally, but earnings are coming in about a month and we should see some anticipation of good reports from select names. I believe it will continue to be a good market for stock pickers, but it is likely to narrow as we deal with choppiness and seasonality. I don't see any reason to be concerned about the sort of meltdown like we had in February and March. The Nasdaq 100 was down 4.6% this week, which was the largest loss since March but this is not a market with strong downside momentum.
Have a good evening. I'll see you on Monday.