For most of the day on Tuesday, the trading in stocks was mild. Small-caps and growth names saw relative strength, and the much-maligned Ark Innovation ETF ARKK was enjoying good relative strength.
Late in the day, several sell programs hit and the indices sold off sharply into the close. Breadth still was fairly good as there was rotation into many of the stocks that have been the biggest laggards for a while. It is a very bumpy process, but the gap between the leaders and laggards has been closing lately.
Broad selling is continuing at the open here on Wednesday morning, and we will see how much rotational action is occurring once the regular session starts
The Nasdaq and Nasdaq 100 have not corrected as deeply as some of the favored speculative sectors such as biotechnology and special purpose acquisition companies (SPACs), but both are now into their fifth straight week of decline. According to Investor's Business Daily, that has not occurred since a six-week drop in October and November of 2012.
The Dow Jones Industrial Average is still exhibiting superior relative strength, but the value names that have been leading are now coming under more pressure this morning.
One significant development overnight is that Bitcoin fell to as low as $38,585.86. It is still up for the year, but the selling pressure has intensified after three Chinese administrators published statements that financial institutions shouldn't accept virtual currencies for payments.
Speculative stocks have been under pressure since mid-February and cryptos had withstood that for a while, but now the entire group is suffering from the lack of fundamental support and some poor charts.
The big question at this point is whether the selling pressure will be correlated with everything selling off in tandem or whether we will see some relative strength in laggards that already have been in a bear market for months. Typically it is tough for small stocks to buck the trend of the major indices, but what we need to watch for is whether support levels that have developed recently can hold.
This is an extremely tough market environment right now, but the good news is that we are undergoing a process that eventually will lead to better conditions. Patience and capital preservation are paramount.