Could See Some Rotation...

At a glance, it looks like we merely had a little consolidation today in the Dow and S&P 500 following yesterday's big gains. Under the surface, however, there was some major chaos.

The big cap-momentum names (the ones that have been leading this market since the start of September) were pounded. Market players couldn't run fast enough from the likes of FFIV, CRM, VMW, NFLX, AMZN, CMG, PCLN and so on. AAPL hung in, however.

Those are the stocks that the momentum players and the performance chasers have focused on for a while. The strength in those names is a big part of the reason that market players have been so upbeat for a while.

Does this aggressive selling of the momentum names signal a change in market character? I suspect we will see quite a few defenses of these names tomorrow, but the dangerous thing about momentum stocks is that, once they break down technically, they don't recover easily. We'll see some aggressive traders going long some of these names for bounces, but they are going to be flippers and longer-term holders that are unlikely to move in very quickly.

If the pressure continues on the "glamour names," we'll have to watch to make sure that speculation doesn't dry up in other parts of the market. One positive today was that there were some signs of rotation into financial and commodity names. If a strong rotation kicks in, we can handle some further weakness in momentum names, but we are going to need some new leadership very quickly.

While the action under the surface was troubling, the major indices still look fine. The key is for the S&P 500 to continue to hold the 1050 breakout level it surpassed yesterday. As long as it can do that, we can consolidate and set up for some positive action as earnings season starts in about two weeks.

I don't think it's gonna pay to be overly bearish here, but we definitely have to watch what happens with these momentum names. If they continue to struggle and no new leadership emerges, it may be a bumpy ride.

long AAPL