It was a rocky week for the stock market as the drop in the momentum stocks Tuesday caught many by surprise. The social media stocks bore the brunt of the selling with large drops in Twitter, Inc. (TWTR) and Facebook, Inc. (FB). The action had me wondering last Wednesday whether it was a Momentum Meltdown, Bear Trap or?
The market's rebound Wednesday was followed by even heavier selling on Thursday's opening but the major averages did close well off the day's lows. The action last week appears to have been accompanied by a change in sentiment from the financial media.
In April and May, as well as during June's impressive rally, the dominant opinion from the financial TV networks was that stocks were overvalued and could not go higher. There seemed to be a shift last week as the weakness in the stock market was often discussed as a buying opportunity.
Though I never pay much attention to any economic report, or the opinion of other analysts, I do look for shifts in opinion that can be combined with the technical readings. The dangers of a one-sided view of the market were discussed in early June's Why Following the Crowd Can Be a Bad Idea. In that column, I shared many examples of how the best buying opportunities are accompanied by extremes in bearish sentiment.
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