Stocks bounced a little in the closing minutes, but the Dow Jones industrial average still suffered its worst days of the year with a loss of over 2%. Breadth was around four losers for each gainer, and new 12-month lows expanded to over 300. It looked like classic corrective action, but if you dig under the surface, it was a very healthy day for some elements of the market.
The action was an inverse of some of the action we had seen during the past couple of weeks when the indexes were flying higher on very narrow breadth. Monday, the indexes reversed hard to the downside, but there was some surprising strength in the sectors that were being beaten up. Biotechnology (as seen in the biotech exchange-traded fund (IBB) was very good), and growth ETF Ark Innovation (ARKK) managed to close up 0.78%.
This abrupt rotation between leaders and laggards and small-cap stocks and big-cap ones has occurred several times this year. These shifts help to close the gaps that have become excessive, and it also helped to reward stock pickers who were watching for the market to appreciate some of the stocks that were trapped in out-of-favor groups like biotechnology.
Certain areas of the market, especially oil and cannabis, did not find good support, and there was plenty of new technical damage, mostly in stocks that were outperforming recently.
While there were some unpleasant aspects to the market action, it was exactly the sort of action that we needed for healthier trading. The big caps and indexes have become overbought, and many small caps were oversold and looking for support. Both groups did what they needed to do today, and that should help to trade as we move forward.
IBM's (IBM) earnings are out, and the stock is seeing a favorable response, even though it is a serial disappointer.
Have a good evening. I'll see you tomorrow.
