The corrective action that the market has been struggling with since the surprise Fed hawkishness is evolving. This is no longer just the standard rotation action out of growth and into value and financials. Banks are lagging badly today, with a drop of 1.6% in (XLF) following some strong earnings. This is partially 'sell the news' action and partially just part of the broader market correction.
Breadth is running about 3 to 1 negative, but one bright spot is that the number of new lows has not been expanding by much. It is currently at around 650, but this number was over 1000 not long ago. Relative strength in the worst stocks is a good sign that the corrective action is now shifting more to the bigger caps.
While there still is plenty of very poor action in smaller stocks, I am watching to see how well they hold up versus the indexes. For many months the indexes were trending higher while many stocks were in a downtrend. I don't expect these stocks to fly higher when the indexes are correcting, but I expect to see some minor signs of relative performance. They may still sink but not as fast as the other things like banks that are correcting now.
There is a lot of chatter about how interest rate fears are going to cause a major market downtrend. Maybe, but much of the market has already had a major downtrend, so it won't be a typical bear market when so many stocks are already grossly oversold.
I don't know how this will evolve, but I feel well-positioned to take advantage of new developments. I'm doing my best not to listen to all the predictions that are growing so loud because I think this market is going to end up acting in a way that few are expecting.
