It was a tough week for market participants as some severe corrective action finally hit. It is the nature of the market beast to dish out some pain, but if trading was simple and easy, then it wouldn't be so potentially lucrative.
On Tuesday morning, the market saw its first real panic in months. It didn't last too long, and stocks bounced back quickly and continued to rally on Monday, but the action created some technical damage and had an impact on market sentiment. Stock-pickers that have been doing so well for so long lost some of their confidence, and many of the key groups that they have been supporting fell apart. SPACs, cannabis, biotechnology, and a variety of small-cap names broke key technical levels.
The selling picked up on Thursday and what was most notable about it was that it was highly correlated. Everything was sold regardless of sector, value, or fundamentals. The selling slowed on Friday, and there was a little bounce action, but the snapback fizzled out, and the close was weak.
The blame for this corrective action was placed on improving economic conditions and rising bond yields. Inflation has not been a market issue for years, but it is starting to become one now. A strong economy will be able to handle higher rates, but the transition is causing problems as market players try to adjust.
Many stocks have already undergone substantial corrections and are finding some support, but there is extensive technical damage, and confidence levels have faded. I do not feel that this is the start of a major correction, but it may take a little time for stocks to reset, find support and turn back up. It is dangerous to have too much exposure right now, but the potential for a good recovery is there once the issues with interest rates are digested.
I'll be working on shopping lists and will be making incremental buys next week as we monitor market conditions. I see quite a few good values, but they lack upside momentum in this poor environment.
Have a great weekend. I'll see you on Monday.