• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Evergrande Provides an Excuse for a Deeper Correction in Indices and Big-Caps

Watch for relative strength in secondary stocks that have already undone a substantial correction while indices and big-caps catch up to the downside.
By JAMES "REV SHARK" DEPORRE
Sep 20, 2021 | 07:10 AM EDT

The corrective action that has been brewing for a couple of weeks is accelerating this morning on headlines that Chinese property development firm Evergrande is about to default on roughly $300 billion in debt. This is creating fear of a possible contagion that will spill over into other areas of the market around the world. China has already been cracking down on speculation, and there is concern that it may not rush to support Evergrande, but this is one of the largest real estate development firms in the world, and there is much discussion that it is 'too big to fail.' China may have little choice but to help bolster economic sentiment.

As is so often the case, the negative news coincides with a market that has been struggling and looking for a good reason to correct further. It is often market conditions that determine the degree to which a news event matters, and this is a good example of how poor negative news and poor technical action tend to coincide.

The primary issue for market participants is how deep will this corrective action run. There is some fear this morning, and that will help to move the market more quickly to some support levels, but it will likely take a little time for the market to fully discount these events.

Although this looks very dangerous right now, the big opportunity in this market lies in the fact that a large number of stocks have already corrected very deeply and are struggling to build support. Even though the action has been poor for a couple of weeks, there has been underlying support in the form of speculative trading in many secondary stocks.

The positive spin on this action is that the indices and big-caps are simply catching up to the downside with a great number of other stocks. It had to happen at some point. What we need to watch for now are areas of relative strength. I suspect that we will see small-caps and speculative stocks outperform again as they did on Friday. That doesn't mean they are going to go up, but they are not likely to be as bad as the indices and big-caps.

Keep in mind that the Fed will issue its latest interest rate and policy decision on Wednesday at 2 pm ET. There is no way that Jerome Powell and his crew are going to allow the Evergrande issues to spill over and impact the economic recovery in the U.S. The Fed will do whatever is necessary, and if that means a delay in tapering off bond-buying, then so be it.

While the Evergrande situation is a perfect excuse for speculation about a contagion, I suspect that it will just hasten the much needed corrective action in the indices and will help secondary stocks to produce relative strength.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, James "Rev Shark" DePorre had no position in the securities mentioned.

TAGS: Real Estate | Economy | Federal Reserve | Investing | Markets | Small Cap | Stocks | Trading

More from Investing

Bearish Bets: 3 Stocks You Should Consider Shorting This Week

Bob Lang
Jul 3, 2022 10:30 AM EDT

These recently downgraded names are displaying both quantitative and technical deterioration.

Let's Shine a Light on Lucid Motors as It Slides Downhill

Brad Ginesin
Jul 2, 2022 1:00 PM EDT

LCID's market cap has been deflated, so is it now a bargain, or can it slip further?

Stop Wishing, Hoping and Praying and Take Control of Your Investing

James "Rev Shark" DePorre
Jul 2, 2022 10:00 AM EDT

The most powerful thing an investor can do is embrace the idea that they don't know what the future holds.

If You've Got Time, These Three Dividend Aristocrats Should Pay Off

Bob Ciura
Jul 2, 2022 7:30 AM EDT

There high-growth dividend stocks will be here over the long haul.

Welcome to Second Semester on Wall Street, Here's How to Make the Grade

Jim Collins
Jul 1, 2022 4:36 PM EDT

Think you can own big tech? You might just get an 'F' for that. Here's what will get you on the other side of this year.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • 07:59 PM EDT PAUL PRICE

    Very Good Quarterly Numbers From Bassett Furniture (BSET)

    Bassett Furniture blew right through analysts es...
  • 04:41 PM EDT PAUL PRICE

    First-Half Results - Putrid; Second Half Results - Likely to Be Much Better

    It's great that we're done with June. 2022 mark...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login