Market players are struggling with something that they haven't seen in over 12 years -- a lack of liquidity.
Since the bear market of 2008-2009, the market's strength has often been explained with the simple phrase: "Don't fight the Fed." The view was that as long as the Fed is running its printing press, there would be plenty of cash to support equities.
The Fed is still quite dovish, and fiscal policy is at record levels as well, but what seems to be weighing on the market right now is a lack of liquidity. Fundamentals are fine, valuations are not terrible, and it is obvious that the economy is improving fast.
So where did all that liquidity that was driving the market a couple of months go? Some of it is sitting on the sidelines as traders have struggled for the last six weeks and lost confidence. Quite a bit of the cash is tied up in the flood of SPACs that soaked up billions. And some funds are flowing into consumption outside of the stock market.
This sort of poor trading action also tends to feed on itself. Buyers aren't going to jump in when price action is poor, and price action will stay poor if buyers aren't chasing strength.
I suspect we are just going through a form of corrective action and that the liquidity will come back again as the economy picks up speed. There shouldn't be any major tax hikes for a while, but that could be a roadblock at some point if liquidity isn't flowing very well.
I see quite a few stocks fading right now -- not due to poor fundamentals, but due to lack of buying interest. They can continue to drift lower, but the valuations are becoming quite compelling in places.
One group that is already beaten up and looks pretty washed out is biotechnology. Some of the names I'm tracking and watching for entry points are as follows:
ProQR Therapeutics N.V. (PRQR)
Xeris Pharmaceuticals (XERS)
Aurinia Pharmaceuticals (AUPH)
Surface Oncology (SURF)
Oncternal Therapeutics (ONCT)
Seelos Therapeutics (SEEL)
Gamida Cell (GMDA)
Sio Gene Therapies (SIOX)
PAVmed Inc. (PAVM)
Apollo Endosurgery (APEN)
Trillium Therapeutics (TRIL)
ANI Pharmaceuticals (ANIP)
Cassava Sciences (SAVA)
Forte Biosciences (FBRX)
Myovant Sciences (MYOV)
There are quite a few interesting plays out there, but we need liquidity to return before they are going to do much.