That'll Slow You Down

While certainly not representative of the entire market, the persistent weakness in the small and micro cap stocks this morning in the face of oversold conditions (not to mention a sizable selloff yesterday) is enough to force me to reduce my long exposure, taking down wins where I have them and cutting losses while they are still contained. 

To be sure, the energy sector rotation thesis is still very much in play. However, the tone of the price action smacks of much more risk-off now overall, with many biotech issues, retail, and pot stocks taking it on the chin as I write this. Granted, the SFIX earnings selloff did not help the cause for retail in the near-term, but the selling seems more widespread. 

For now, recoiling a bit into a defensive shell is likely correct as the new quarter is off to a rocky start. We want to resist the urge to force in trades to try to make something happen in lieu of letting it come together naturally when the market is good and ready. 

As long as the IWM ignores oversold conditions, as denoted by the arrows pointing to the lower Bollinger Band on the daily chart, below, I suspect bulls will grow frustrated with the narrowing action and lack of follow-through from apparently quality setups. On a positive note, a few days of simply backing and filling in lieu of the entire tape coming in hard may be a bullish alternative. 

Two relative strength names early on which are green and have sound charts: ERI VRAY. If they go red, it likely means the broad market selling is simply too much for bulls in the short-term.