Three days of selling have done some technical damage to the market.
The Nasdaq breached its 50-day simple moving average and it is now below for the first time since mid-April. Investors Business Daily has moved its current market outlook to "uptrend under pressure," which is the first change since an uptrend started on April 2.
While the Nasdaq has already dropped close to 10% from its high the brunt of the damage has been done to the big-cap technology, FATMAAN names, that have been the strongest sector of the market over the last few months. There have been many complaints about how narrow the market has been to the upside. The selling over the last few days has come on poor breadth but the intensity has been focused on the large-cap technology names. Much of the rest of the market has undergone a much more mild correction.
Despite the sea of red there have been some pockets of good stock-picking. On Tuesday, the SPAC sector stood out as a number of electric vehicle names attracted strong speculative buying. Stocks such as Workhorse Group (WKHS) and Nikola (NKLA) were unaffected by the liquidations taking place in other sectors of this market.
While the corrective action that is taking place in the major indices may have further to go, the good news is that the pockets of stock-picking indicate there is still a good speculative appetite under the surface. While the pundits and the media are moaning and groaning about stocks like Apple (AAPL) and Tesla (TSLA) , the aggressive money has already moved on and is looking for those stocks that are not wildly overvalued and have solid technical patterns.
The indices have been misleading on the way up and they are now misleading on the way down. There are many stocks that are not trading in correlation with the indices or the big-cap tech stocks and that is where the opportunities lie. There will always be some traders focused on catching bounces in the well-known names but there are plenty of good patterns in secondary stocks.
Don't be blinded by the indices. Look under the surface and focus on sectors. Obviously technology names are extremely difficult right now but I noticed some better technical action Tuesday in groups such as biotechnology, which has been correcting for many weeks already. That has been hidden by the indices so look at the stocks and not just the S&P 500 or the Nasdaq.
My game plan is to stay focused on stock-picking and look for the strong pockets of trading action such as SPACs. It is necessary to be more selective and to use a shorter time frame but there is enough positive action under the surface to support a bullish approach.
We have some bounce action to start the day. The FATMAAN names are all green and some concern about vaccines is being set aside for now.