The Action Was Not As Bad As It Looks
- Posted by Frank Zorrilla
- on October 15th, 2014
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”.
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.
Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm. Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts. Managed Assets
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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Frank Zorrilla is the founder and chief investment officer of Zor Capital LLC.He began his Wall Street career 10 days after his 20th birthday when he became a Series 7 licensed stock broker. More »
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