The DJIA is still down close to 500 points, breadth is running about 2000 gainers to 5300 losers and there are over 1100 stocks hitting new 12-month lows, but the early panic has cooled and there is a little bottom fishing taking place. Some of the FAANG names are positive but the mighty Apple (AAPL) continues to drag with a loss of over 2%
The primary index I am watching right now is the Russell 2000 ETF (IWM) . The IWM was the first to correct back in early October, the first to bounce in November, and is the first to take out recent lows. It has been a leading indicator of the overall action. The action in the IWM still looks quite poor but it bounced off the lows and is showing some signs of stabilization.
Not that long ago we used to talk about V-shaped bounces following a market pullback. The dynamics that created that illogical action are no longer in place and we have to be much more aware of the problems caused by overhead resistance.
Typically when stocks have fallen sharply they don't go straight back up because there are stock longs looking to escape into strength and more aggressive bears looking for new shorts. The fear of missing out is what keeps V-shaped bounces going and that no longer exists in this market right now.
Although there are some small caps on my screens showing signs of being washed out I am in no hurry to add exposure. My motto is better later than early. I'd rather join the party after it gets started than try to time exact entry points. I don't mind missing the first part of a move if it means that my risk is reduced.
I'm still optimistic about a decent rally before the end of the year but the market has not convinced me yet that it is time to put cash to work.
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