From Cabot Top Ten Trader:
After a straight-up run in many indexes and some great moves by individual stocks, the sellers have finally taken a stand, with the market and many stocks hitting air pockets during the past couple of days.
What do we think? First and foremost, the intermediate- and longer-term trends remain up for the indexes and the vast majority of stocks, so we continue to expect higher prices in the weeks and months ahead. And, while there has been damage (we have a few sells listed below), for many stocks, the action thus far looks like a “trend knockout,” i.e., a sharp decline that shakes out the weak hands after a big run.
In the shorter-term, we wouldn’t be surprised to see some sloppy action. We say that (a) because of the recent selling after the big run, (b) because we’re seeing some money flow into defensive sectors (utilities, consumer staples) and out of some risk-on sectors (especially materials) and (c) because earlier this week, the number of stocks hitting new highs on the Nasdaq reached its largest level since early December. That often precedes some short-term weakness.