The action today was not as bad as it looks regardless of what is happening in the after hours. Since 2013 the perma bears have been harping about how the Dow Jones that has 30 stocks and the SP500 with its 500 were masquerading the horrible action underneath the surface, and that was true, but not actionable until it was blatant which we wrote about here. Today the complete opposite happened, while the Dow Jones and the SP500 were deep in the red the majority of stocks were doing fine. The Russell 2000 outperformed the SP500 by 1.83% while closing up 1.06%. It turns out that the Dow and SP500 were again masquerading the action underneath surface, only this time it was masquerading positive intraday action. There was no mention of this due to confirmation bias;The tendency to search, interpret, or prioritize information in a way that confirms one’s beliefs or hypotheses (or position in the market). As a matter of fact when the Dow was down 300 points we had more stocks up for the day than down. We ended with 2,403 stocks up for the day versus 708 that were down (link), looking at the Dow 30 and the SP500 you would’ve never thought that, this is why it is important to look underneath the surface. We have seen a relative out-performance of the Russell 2000 in the last 5 days. This is a big change because the RUT was the first to get hit and normally the first to get hit when the market is correcting is the first one to come out of the correction, so that is a step in the right direction.
By no means do I think that we are out the woods but I’ve never been a fan of pointing out negatives when the market is oversold and down 300, 400 points, I rather point out the negatives when we get the dead cat bounce.
Going forward the reaction to negative reaction to earnings from NFLX, INTC, C is something to watch very closely like @TraderStewie pointed out on twitter. And if you believe that in order for us to have a true bottom we have to have that classic textbook capitulation, well, we have not seen that yet aside from maybe the energy names. Like I pointed out yesterday we have not seen the type of selling in individual names like we saw the last time we had a real correction, the summer of 2011. To put it in perspective, during the summer of 2011 the Russell 2000 lost 20%+ in 12 days, withing those 12 days we saw a few days in which we had 2,000 plus stocks down 4% or more in a day, so far in this sell off the most we have seen is 462, you can see the charts here. Heck, in today’s sell off (based on the dow and sp500) we had 475 stocks up 4% versus 239 stocks down 4%, no real selling, no capitulation, why all the panic I ask… For traders that are nimble then you probably know that you can get a few trade-able bottoms before “THE BOTTOM”.
The UVXY was up 12% in the after hours after NFLX and EBAY came out with their numbers, with the VIX 80% above its 50 day sma the stats say that you should not chase long VIX instruments here.
p.s I write this from a swing traders perspective, which is different from a long term perspective, even a day traders perspective. I have not been kicked in the teeth during this sell off so my mind and thought process is a little clearer than someone who is behind the eight ball.
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