For the last two weeks, big-cap technology stocks have been undergoing a correction. Much of the money that has been flowing out of those stocks has been rotating into other sectors like biotechnology, special purpose acquisition companies, electric vehicle names, precious metals and solar energy. It has been good action for stock pickers that have stayed focused on price action rather than the indexes.
This morning, that selloff broadened, due in part to concerns about growth in Covid-19 cases and stories about major banks laundering funds. Early in the day, breadth was running around eight to one negative and there were no safe havens, but as the day progressed, some funds started to rotate back into the big-cap technology names. By the close, most of the FATMAAN names were back in positive territory and some technology stocks that have been hit hard bounced back. Names like DocuSign (DOCU) , Coupa Software (COUP) , Fastly (FSLY) , and PayPal (PYPL) had good-sized gains after trending down for the last couple weeks.
Breadth was still quite poor at the close, with around six losers for each gainer, but the rotation back into the big-cap tech names was enough to push the Nasdaq 100/Invesco QQQ fund (QQQ) into positive territory. The Russell 2000 fund (IWM) finished off the lows, but still had a sizable loss of 3.5%.
This is basically the inverse of the action that we saw over the past couple of weeks. It is a classic rotational correction, where different parts of the market go through corrections at different times. Apparently, the Nasdaq 100 names have finished much of their correction and now it was the small-cap names' turn to take a hit.
This is natural and normal action and will help to wring out the excesses that have developed recently. There is no way to know how much longer it will continue, but the good news is that there was a bounce into the close and some bargain hunters did step up. The indexes still look very poor and the breakdown in financials -- such as in the Financial Select Sector SPDR fund (XLF) -- is ugly, but the corrective process is playing out and sooner or later the slate will be set for another upside move.
Have a good evening. I'll see you tomorrow.