Major Sell-off Starting or Good Opportunity?

Friday produced a key reversal in many stocks, and darn-near key reversals on hundreds of others. Volume in many cases was well above average, although Friday was a ‘quadruple witching day' with expirations in September options and futures.

A key reversal, in the context of an uptrend, is where the stock opens above the previous close, makes a new high, then closes below the previous low.

Countless other stocks didn't meet the key reversal definition, but came close. ADP, AKAM, CNI, and GS for just a few examples. And if the stock wasn't near a high to start with, it still ended up taking a pounding. CAT is a good example.

If you look at the chart of the S&P 500 you wondered what all the fuss was about. But if you look at the chart of the NASDAQ Composite or the Russell 2000 you are more concerned. I didn't even make it out of the A's in my chart analysis before realizing the tech stocks got hit particularly hard.

The financial press will be using this opportunity to emphasize how disastrous Septembers and Octobers have been in the past, but they use a non-practical way to analyze historical results. If you are thinking of buy a tech stock this week, the track record for gains over the next few months is actually pretty good.

Using the Q's, the more tradable form of the NASDAQ Composite, the next 11 weeks has produced an average 6.6% gain, with gains in a good 79% of the years.

Yes, over the next 2 weeks, QQQ has lost an average 1.3%, with losses in 14 out of 24 years (the NASDAQ Composite is nearly identical), but the trend from here is up.

While Friday's trading looked scary, and we have to discount that a bit due to options expiration, based on the track record for this time of year, I would not expect this pullback to go far. If a significant news event triggered wholesale selling, this pullback could turn into a major retreat. But barring that, buying may return after a brief pause. Even after clear reversal patterns have formed, money has quickly come back into the market after most pullbacks of the past few years.

This is the time to make sure quality tech stocks are on your watchlist. Most of them have strong seasonal patterns for this time of year. Wait for a market rebound, then consider buying tech stocks with good fundamentals in good technical setups.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2014 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

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