A Slight Scent of Bear in the Air
This is the third day of poor market action. My timing was premature but I have been anticipating this for a while. A combination of inflation worries, growing odds of a Fed rate hike, a negative reaction to a great Nvidia ($NVDA) report, and negative seasonality are coming together to create broad market pressure.
Breadth is only 35% positive early Tuesday and there are few signs of the rotational action that has held up the indexes. There is some strength in pharmaceuticals, which are a defensive play, and oils are doing well on higher crude prices, but otherwise it is very gloomy. My scans for pockets of speculative action have only about a dozen symbols on them.
It is premature to draw conclusions about this action but there is the slight scent of bear in the air. I am not looking for drops in the indexes of that magnitude, but plenty of individual stocks are going to suffer for a while as this corrective action plays out.
Flexibility Is Everything Right Now
Action like this is absolute misery if you have no cash or buying power, especially if you do not want to take stops on the great stocks you own that are under technical pressure. You need flexibility in an environment like this so you can take advantage of the opportunities that arise.
If you are positioned correctly, then you will welcome some ugly days like this. You are still going to take some hits if you are holding anything, but the focus should be on finding the names that are being mispriced and will recover when the inevitable shift in market character occurs. It requires great patience and a positive mindset but it works.
What I Am Doing
I am making a few small trades, but I am also making a few buys in names I want to build for a potential market turn after the midterm election or earlier.
I have made a couple of small buys of Amazon ($AMZN) recently and added again today after it took a hit on news of a major lawsuit. I do not expect Amazon to turn around and go straight back up any time soon, but I think it will improve as we move toward third-quarter earnings.
Another name I started today is a biotechnology stock I have traded in the past, BridgeBio Pharma ($BBIO). The company has had recent good news, and analysts have been positive on it, but it is under pressure as legacy holder KKR ($KKR) liquidates a position. KKR sold five million shares in a secondary priced at $78 in mid-August, and BridgeBio received none of the proceeds. The stock has since broken that pricing level, which I think is an opportunity.
The chart looks poor with no clear support right now, so I put a little on the radar and will watch for opportunities to build it further.
The key to navigating difficult markets is to have flexibility. If you are in the position of always dreading poor action then you will never be able to take advantage of many great opportunities.
At the time of publication, Rev Shark was long AMZN and BBIO.
