The market's corrective action continues this morning as it tests the lows that were hit last week. The S&P 500 is currently sitting right at its 50-day simple moving average and slightly above its recent closing low of 3811. Another down day would produce a lower-low and push the S&P 500 into a full-blown correction.
Much of the market is already in a correction. The Nasdaq 100 (QQQ) is already under last week's low and more than 8% off recent highs. Both the DJIA and the Russell 2000 (IWM) are still well above their 50-day simple moving average, but if we dig deeper, there is some major technical damage in groups like SPACs, electric vehicles, biotechnology, and other groups that have been favorites of aggressive stock pickers.
Although the price action is unpleasant, it isn't unusual. This is just a normal corrective cycle after a very strong run and some frothy action. The market will eventually reset, find support, and rally again, but the timing is the hard part. We have some downside momentum right now, but the bounces in this sort of market tend to occur very suddenly.
What is a little unusual about this corrective action is the catalyst for it. The problem is that there are worries that the economy is improving too fast and may have too much stimulus. This is causing bond yields to rise on inflation concerns. There is also rotation within the equity markets into stocks that are seen as benefiting from the reopening of the economy.
Fed Chairman Jerome Powell is speaking later and is expected to reiterate that the Fed is in no rush to raise interest rates. That doesn't seem to be stopping the bond market, which seems convinced that rates need to rise regardless of the Fed's continued dovishness.
This is a very tough market right as dip buyers are finding that the automatic buying isn't working as well as during a vigorous uptrend. Many stocks are struggling to hold support, but there should be some good opportunities once the selling momentum slows.
I'll be doing some minor bottom fishing on weakness, but I want to see better action before putting money to work. The good news is that the list of opportunities is growing quickly.