Indices like the S&P 500 and the DJIA are supposed to provide a quick and easy way to gauge overall market health. Sometimes they do a pretty good job, but at other times they can be quite misleading. Monday was one of those times when the indices failed to the real story of the market.
Although the indices were slightly negative, what they failed to reflect was some very aggressive selling in various sectors of the market. This rotational correction has been ongoing for nearly two months now, but it picked up some steam yesterday with groups like biotechnology, gambling, cannabis, and other speculative favorites taking hard hits. Small-caps generally were much worse than the Russell 2000 ETF (IWM) , which finished with a minor loss of 0.4%.
The good news is that the selling looked almost capitulatory in places. Bids disappeared, and disgusted holders sold into the abyss. Fundaments and valuations were ignored as market players just wanted to escape the misery. As I've often written, bad markets don't scare you out, they wear you out.
We will see if the action yesterday has moved some of the weakest small-caps close to a low, but the more puzzling issue is how the market is going to digest this great inconsistency. The major indices are moving along and look extended, but if they do start to correct, what will happen to sectors that have already undergone substantial corrections? Will there be rotation back into recent laggards, or will there be broader weakness that keeps the laggards pinned down?
We have some major bank earnings hitting tomorrow and some inflation data coming as well, which may cause rotational action again, but we have to wait and see how that develops.
News is hitting that the U.S. has caused a pause in the Johnson & Johnson (JNJ) vaccine due to blood clots. Futures turned lower on the headline.
Bitcoin speculation is heating up this morning and is pushing the cryptocurrency toward new all-time highs. There is also the largest SPAC deal ever as Southeast Asian ride-sharing company Grab makes a deal with Altimeter Growth (AGC) . That may help sentiment in the SPAC sentiment.
We have quite a few cross currents in this market, and the indices just aren't doing a good job of telling the story. Stay focused on sectors and rotational action if you want to navigate the action.
