Friday was a bad day for momentum stocks. 114 stocks in my stock universe were down 4% or more on higher volume. First time after a long time this number exceeded number of stocks up.
The heavy selling started in the morning and the dip buyers never showed up. The selling pressure sent major indices and momentum favorites stocks down sharply. Momentum stocks and leading stocks like GOOG, NYX, LVS, WYNN, MA, OMTR, etc. suffered and had high volume reversals.
So far the rally from the July low has been characterised by 3-4 such sharp sell offs which failed to follow through on downside. So it might be too early to press down side bets. But this sell off is coming at the end of the earning season and their is likely to be high probability of it following through.
For momentum based strategies and other strategies which I personally use, I generally avoid 3-6 days after such sell offs to initiate major new positions. Stocks which breakout during such period often do not immediately follow through and offer better low risk entries later. Such interface where bullish move correct,from my past experience have proven to lead to me giving up large % of previously built profits. So I avoid and try and anticipate such zones.
Once the down move becomes clear the sectors to avoid and stocks to avoid becomes clear. In few days the other sectors and stocks which are not part of the down move start breaking out and those are the kind of opportunities which show up on my system after few days.
If you are looking for a Telechart 2007 scan to find short candidates try this:
( 100 * (C - C1) / C1) <= ( - 4) AND V >= 1000 AND V > V1
It will give you 114 candidates. As a general rule while looking at short candidates I avoid low float stocks and stocks with high dividend. Sometime later I will have more on how I built a short strategy using the "Significant Moves" concept.