Major averages clawed their way back on Friday after gapping lower at the open to finish roughly flat at the top end of their respective trading ranges on mixed volume. Friday marks the eleventh day up in a row for the Dow Industrials. Some further digestion of gains as we have mentioned previously could be expected.
Friday's gap down at the open was a great place to take profits on any short positions then wait for weak rally attempts to possibly reinstate short positions. As we like to say, stocks take the stairs up and the trap door down especially in these environments. But unlike prior cycles, stocks often find a floor within a day or two of their drop so taking profits when you have them when it comes to shorting is key in this environment.
Fund managers remain in FOMO mode (fear of missing out), so while traders bail on leading stocks in a heartbeat, hitting them hard for a day or two, the bifurcation remains between the market averages which may only correct a couple of percent before finding a shallow floor compared to the more pronounced correction in some leading stocks.
There's the quick and there's the dead when it comes to the short-lived but sharp selloffs in leading names.
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