With two days left in the first quarter of 2021, market players continue to struggle with rotation, reallocations and forced liquidations. On Tuesday, growth stocks favored by the Innovator IBD 50 ETF (FFTY) and small-caps were hit hard, while money rotated into safe-haven value names such as Coca-Cola (KO) and Kraft Heinz (KHC) .
In addition to the rotation into value names, bonds struggled and a number of Asian and entertainment stocks remained under pressure due to the unwinding of what the media are calling the biggest margin call in history after the blow-up of a family office.
The thing that is most notable about the market currently is that stock picking is not working. A few weeks ago, market participants were aggressively chasing stocks in sectors such as special purpose acquisition companies (SPACs), electric vehicles, gambling, cannabis, solar energy and biotechnology. All those groups have lost their luster recently, and even the best values within the groups are struggling to find support. Overall market breadth Monday was nearly 3 to 1 negative as smaller stock went bidless as cash moved into stodgy safe havens such as KO.
The rotational action probably is not over yet and there will be some lingering impact as we enter the second quarter, but the liquidation of the Archegos fund and the related fallout are being digested. Also, there have been concerns recently about a rebound in COVID cases despite the aggressive rollout of the vaccine. These concerns have caused a little movement back into the work-at-home names, but even the FATMAAN stocks have not been able to produce any sustained upside moves.
The market's biggest issue right now is that rotation and reallocation are producing choppy and inconsistent action. Few stocks -- even those in favored sectors -- have been able to produce sustained momentum and those that are doing best right now are not the names that tend to provide lasting leadership.
We have a mixed start again, with the Nasdaq 100 under pressure as money continues to move out of big-cap technology and the Dow Jones Industrial Average leading as safe-haven value names attracting liquidity. Many small-caps have been brutalized and are washed out, but they are still unable to find much support. Bitcoin is one bright spot for speculative traders for a second day.