The market once again did what it loves to do when things start looking just a bit too rosy on the long side: the old “yanking of the rug.” On Thursday, it pulled the rug out from underneath investors after a brisk opening move to the upside led by a post-earnings gap-up move in Facebook (FB). But that move in FB topped out around 178 in conjunction with a similar intraday top in the major market indexes, and it was all downside from there.
The NASDAQ Composite Index posted an ugly outside reversal to the downside, but managed an intraday bounce off its 20-day exponential moving average. As I noted in my Wednesday mid-week report, the two days of churning action around the peak at that time led me to conclude that, “…a pullback here would not be surprising, frankly.” I also closed that report by urging members to review their selling strategies, including both absolute and trailing stops, as well as upside price objectives.
The upside jack in a number of leading names at the open on Thursday might have presented decent moves to sell into for those who use a swing-trading approach as I do. For those who don’t, it was the time to be on high alert and acutely aware of where your exit points are for each position.
Thursday’s selling was sharp and substantial, as trading volume swelled on that day. The NASDAQ Composite was knocked right down to its 20-day exponential moving average, which served as near-term support. The index then bounced to close nearer to the mid-point of its daily trading range and back above the 10-day line.