No need to panic over last week's selloff

Is last week's selloff the beginning of the end? Not so fast. Sure the markets — or some segments of the market — have been under duress, while other sectors have been just fine.

Last week was a roller coaster in the market: A selloff early in the week, followed by a midweek rally, then a sharp drop to end at the lows of the week.

This should come as no surprise: The value "adjustment" we are seeing is a bit overdue. And I say "value adjustment" because for now, that is what it is. Yes, some individual "growth" names on Nasdaq have gotten clobbered, taking them into correction or even bear market status and leaving the Nasdaq teetering on the edge.

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Traders on the floor of the New York Stock Exchange.

The Nasdaq is off nearly 9 percent from its recent high (March 6), while the S&P 500 and Dow are off just 4.3 percent and 3.6 percent, respectively, from their recent highs (April 4). That keeps us in "adjustment phase."

Individual names that have suffered recently are those that were overdone on the upside causing long-term investors to raise cash. which then causes the trader type to bail. The surge higher was out of control really, as traders and momentum players began to believe they could never go down again.

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The bubble got bigger and bigger and the alarm bells began to sound.

History does have a way of repeating itself, and for those who have been around the block before, this is not a surprise at all. High flyers that have been outperforming (some up 50 percent to 100 percent), the result of analysts who kept justifying the moves higher, citing "nowhere else to go" or "valuations are reasonable."

Meanwhile, the Federal Reserve (supposedly) remained somewhat opaque and confused on policy, causing traders to test the upper limits. Large asset managers listened to what was really being said and began raising cash positions as the momentum guys pushed the market to all-time highs. Recall that the move up was not accompanied by a surge in volumes — the ultimate tell-tale sign of exhaustion.

In the end, this caused investors to ask: Are these prices really justified by fundamentals? As of Friday — that answer seems to be "not so much" as the herd ran for the door and the momentum guys overplayed their hands.

What is important to know is that momentum guys are mostly quantitative computer programs that react only to the data, void of common sense. They follow the trend regardless of what that trend says about that individual stock, which then causes the dislocation in prices.

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It is important to realize that these high-flying names that are now down some 10 percent to 40 percent represent only a small fraction of the market. Yet, they're garnering all of the talk because their fall from grace was swift — and their names represent the "new world" we live in. Blog sites and chat rooms are abuzz with chatter — "Is this the correction we have been waiting for?" If so, it leaves investors to wonder — what's next?

Remember, just because the market trades lower does not mean that there are no buyers . Every trade has two sides — both buyer/seller — so while some participants are bailing out, others are bargain hunting taking advantage of the sale on Wall Street.

JPMorgan, the first Dow stock to report earnings — and the first to disappoint — reported a fairly big miss. They work hard at managing expectations and talked analysts off the ledge with higher initial estimates, then succeeded in lowering expectations — only to miss that lower number. That, my friends, was a bit of a problem — not only for JPM but also for market psyche. But then, Wells Fargo beat their lowered estimate and then this morning we learned that Citigroup kicked off the week by "blowing the doors off the bus," sending the broader market higher.

I think good stocks that got caught up in the selloff will stabilize and recover quickly.

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What's important is that the market did suffer some technical breakdowns last week. The S&P and Dow finally piercing their 50-day moving average, which now sets us up for a different conversation. Where will the market find support now? Some analysts are calling for a much bigger correction to the tune of 20 percent or even 30 percent but I don't see that happening.

The broader market is not wildly overvalued at all if the economy continues on this slow recovery. Specific stocks may be and those that are will be re-priced, so now it is time to put on the big boy pants.

Barring some unforeseen event, long-term investors/asset managers are not so concerned about a big correction — in fact many expect a test lower with consensus around the trend line and S&P 200-day moving average of 1760, which would represent another 3-percent move lower — still not a correction.

Nasdaq is a different animal — yes, there are some great companies there but investors are now opting for value and safety over growth so a continued move out of those names should not surprise. The challenge for investors is to determine the extent of the anxiety and then access the market accordingly.

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Commentary by Kenny Polcari, director of NYSE floor operations at O'Neil Securities. He is also a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him at kennypolcari.com.

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.