Finally, after many weeks we’ve seen signs of a healthy correction in the works. Monday was a green day on extremely light volume, which is many times a sign of exhausted bulls after a big run. Tuesday finally saw the bears gain ground.
Bears finally made a worthwhile effort because some earnings were poor from various companies such as Netflix (NFLX) and 3M (MMM). Possibly more importantly, the EU summit was rumored to be canceled then it was not canceled, but agreed that no significant agreement is likely to be made just yet. Yes, you read that correctly. Another bullet for the bears was that the bulls became timid as they noticed a sell-the-news reaction obviously forming that could have caused significant pain to them. What further added to today’s sell-off was that sentiment quickly changed for the pundits on tv as they made it sound like the economy was about to fall apart after many days of acting like the economy was improving. Oh the drama.
Tuesday was a clear distribution day in the markets (see chart below) and instead of adding to shorts, I started reducing some ProShares UltraShort S&P500 (SDS). If we follow-thru on the weakness Wednesday morning, I may look to add back to my short position expecting us to ride a bigger correction. Keep in mind, a correction is not necessarily bad. It helps market players adjust portfolios so many times we can move higher in the markets. A correction after a big run like we’ve seen is actually a healthy sign. Believe it or not, it is actually unhealthy to run up every single day on light volume because of fluff headlines from the EU.
My radar is not too large now, as many stocks need a healthy pullback to reset near a support level which traders can feel comforable buying at. Currently, I’m watching Targacept (TRGT), Meridian Bioscience (VIVO), Merge Healthcare (MRGE), Akorn (AKRX), AuthenTec (AUTH), SMF Energy (FUEL), Halozyme Therapeutics (HALO), Healthstream (HSTM), Sonic Automotive (SAH), and Select Comfort (SCSS), among others.
You can follow my trades alongside the 36,000 plus market players who follow me on SeekingAlpha (Shameless promotion). As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was long SDS, TRGT, and VIVO but positions may change at any time.
(SDS: 38.94 +0.65 +1.70%, vol: 28,235,748, avg vol: 10,769,200, 50-day: 42.15, 200-day: 48.62, yield: N/A, cap: N/A, short ratio N/A, 52wk: 38.02 – 73.04, 1yr target: 0.00)
(SPY: 165.93 -1.24 -0.74%, vol: 244,031,728, avg vol: 125,151,000, 50-day: 159.95, 200-day: 150.82, yield: 1.90, cap: N/A, short ratio N/A, 52wk: 127.14 – 169.07, 1yr target: 0.00)
(MMM: 110.79 -0.585 -0.53%, vol: 3,833,486, avg vol: 2,821,950, 50-day: 107.54, 200-day: 100.33, yield: 2.20, cap: 76.467B, short ratio 4.10, 52wk: 81.99 – 112.34, 1yr target: 109.76)
(NFLX: 228.56 -8.53 -3.60%, vol: 3,113,061, avg vol: 5,873,680, 50-day: 179.10, 200-day: 127.65, yield: N/A, cap: 12.832B, short ratio 1.90, 52wk: 52.81 – 219.38, 1yr target: 201.42)
(TRGT: 5.47 -0.12 -2.15%, vol: 209,704, avg vol: 157,623, 50-day: 4.34, 200-day: 4.43, yield: N/A, cap: 183.9M, short ratio 15.60, 52wk: 3.85 – 5.17, 1yr target: 5.50)
(VIVO: 21.71 -0.22 -1.00%, vol: 176,508, avg vol: 162,163, 50-day: 22.16, 200-day: 20.85, yield: 3.47, cap: 900.2M, short ratio 36.00, 52wk: 16.19 – 23.05, 1yr target: 22.29)
(MRGE: 3.26 -0.04 -1.21%, vol: 225,850, avg vol: 461,260, 50-day: 2.92, 200-day: 2.90, yield: N/A, cap: 304.7M, short ratio 14.30, 52wk: 2.20 – 4.53, 1yr target: 4.06)
(AKRX: 14.55 -0.28 -1.89%, vol: 377,336, avg vol: 668,003, 50-day: 13.85, 200-day: 13.33, yield: N/A, cap: 1.398B, short ratio 21.40, 52wk: 11.19 – 16.87, 1yr target: 16.44)
(AUTH: 0.00 N/A N/A, vol: 0, avg vol: 0, 50-day: 0.00, 200-day: 0.00, yield: N/A, cap: N/A, short ratio N/A, 52wk: N/A – N/A, 1yr target: 0.00)
(FUEL: 0.00 N/A N/A, vol: 0, avg vol: 0, 50-day: 0.00, 200-day: 0.00, yield: N/A, cap: N/A, short ratio N/A, 52wk: N/A – N/A, 1yr target: 0.00)
(HALO: 7.17 -0.42 -5.53%, vol: 1,247,909, avg vol: 1,308,590, 50-day: 5.70, 200-day: 6.08, yield: N/A, cap: 806.0M, short ratio 9.80, 52wk: 3.86 – 9.92, 1yr target: 7.79)
(HSTM: 24.70 -0.36 -1.44%, vol: 130,866, avg vol: 133,450, 50-day: 21.68, 200-day: 23.68, yield: N/A, cap: 657.6M, short ratio 10.70, 52wk: 19.50 – 30.76, 1yr target: 27.50)
(SAH: 23.04 -0.52 -2.21%, vol: 138,386, avg vol: 383,308, 50-day: 22.23, 200-day: 22.00, yield: 0.42, cap: 1.220B, short ratio 6.00, 52wk: 11.88 – 25.51, 1yr target: 26.17)
(SCSS: 21.00 -1.01 -4.59%, vol: 1,590,537, avg vol: 1,673,420, 50-day: 18.73, 200-day: 23.91, yield: N/A, cap: 1.169B, short ratio 4.00, 52wk: 16.62 – 34.38, 1yr target: 22.00)
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Tags: 3M (MMM), Akorn (AKRX), AuthenTec (AUTH), General Market Commentary, Halozyme Therapeutics (HALO), Healthstream (HSTM), Merge Healthcare (MRGE), Meridian Bioscience (VIVO), Michael Kudrna, Netflix (NFLX), ProShares UltraShort S&P500 (SDS), S&P 500 (SPX), Select Comfort (SCSS), SMF Energy (FUEL), Sonic Automotive (SAH), Targacept (TRGT)
