Stocks pummeled
With the good
news on Y2K already discounted during the last millennium, and with
bond yields north of 6.5%, stocks were pummeled Tuesday.
The Nasdaq was soaked for its worst
percentage loss since April 19, 1999. The GIN (Goldman Sachs Internet Index),
flush from its best outing Monday since June 16, 1999, put in its worst showing
since June 14.
As for the extent of this selloff, it’s
close to impossible to know at this early juncture if this is a two-day hiccup,
or the beginning of an intermediate-term 8%-to-12% correction…a few things
suggest a lower open Wednesday: The big averages closed near their lows; volume
didn’t reach climactic levels; and the CBOE put/call ratio was only 0.54,
suggestive of a great deal of complacency.
The benchmark techs
were shelled…a 5.8% downday in the MSH doesn’t come down the
pike that often. It only happened once in 1999…Here, Tellabs [TLAB>TLAB]
(-1%), Microsoft [MSFT>MSFT] (-3%), and Applied [AMAT>AMAT] (-3%) held up
best…
In color=#008000>cyberspace, clear distribution finally overtook
Yahoo! [YHOO>YHOO]. Volume jumped 80% over that of Monday, with the final
tally being over double its norm…RealNetworks [RNWK>RNWK] and Network
Solutions [NSOL>NSOL] were two of the only winners among name Web
issues.
The genomics
got hit harder than most other segments due to their relative
illiquidity. Most of these stocks trade <700K shares daily. A few names
escaped with gains, one being Geron [GERN>GERN], an issue worth watching
despite its $13 price tag.
One inexperienced intermediate-term At
trader asked me what was wrong with cutting out of a position today and then
buying it back if the market recovers Wednesday or Thursday. The answer is that
it’s okay to sell and then go back into an issue if it’s within several percent
of a base. But if a stock has been a big winner and is materially extended from
its most recent base, it’s not okay to go back in the next day. In essence, what
you’re then doing is establishing a new position in an extended stock — not a
low-risk entry. So, losing your initial position by selling into a big selloff
like Tuesday’s is something that clearly has consequences. And given that there
are far fewer stocks building multiweek bases than just two weeks ago, i.e.
gearing up for breakouts, there aren’t many vehicles to jump into if one moves
to cash and wants to re-enter should the advance resume in the next few days.
the end of the day, nailing down a winner is a personal decision that must be made by each trader
according to his/her risk tolerance, experience, YTD gains (in this case,
small), etc.