The last few weeks have indeed been quite rough for the market. After a strong rally in late February and early March, stocks have begun to turn over, and indexes have been starting to see heavy distribution. If you are like me, you've probably had many of your trades stop you out, or seen stocks that produced strong moves such as TH, reverse and knock you at near breakeven. Maybe you have a few stocks like VRTX and JXN with decent action, but not enough to really get you excited. Let's take a further looks at the market's action over recent weeks.
All major indexes have seen heavy selling come in over the last few weeks. The Nasdaq undercut its' February low, and the S&P 500 is likely to do so as well in the coming days. The Russell 2000 and IWO are also showing weakness, as is the IBD 50.
Individual stocks have also gotten killed. Stocks that seemed unstoppable in 2020 such as ZM, TDOC, SQ, and SHOP have been absolutely annihilated. NFLX has completely imploded and even mighty AMZN fell 14% on Friday. Cathie Wood's ARKK continues to trend lower, as it looks like it a 1999 dot com stock rolling over.
Investor sentiment has gotten extremely bearish. AAII Bulls is at a multiyear low, which is a good contrary indicator. However, we haven't seen the level of fear that indicates capitulation has taken place. Take the VIX for instance. We have yet to see a move above 40-50. There's just not any sense of "blood on the streets" yet. While sentiment is bearish, I haven't received many "panic texts" from friends. Most correspondences are more in the realm of "concern."
It looks like in the short-run we will continue to see selling coming into the market. We most likely will need to see another move lower to send panic into the market and flush out the last remaining bulls. However, if you're like me and are sitting mostly in cash, this is a time to be diligent. While this clearly is not a time to be aggressive, don't get complacent here. Things can turn on a dime. Be on the look out for stocks setting up and for signs of accumulation on the indexes. Keep your risk in check and don't get too aggressive unless the market shows you strength is building.
There's an old saying that the darkest hour is right before the dawn. If panic starts to set in over the coming weeks and we get capitulation, we may be at the dawn of a new bull market.
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