The character of the market shifted as broad selling hit the Dow Jones industrial average and the S&P 500. Breadth was two to one negative, new 12-month highs contracted sharply to less than 100, and volume picked up.
Typically, action of this sort is a major warning sign, but in this market environment, it was positive in some ways as it was the product of a reversal of the rotations that have been plaguing other areas of the market. For weeks the Dow has been covering up the weakness in growth, small caps, and various speculative themes. That action reversed on Tuesday to some degree, as sectors like biotechnology and high-beta technology reversed up. An easy way to see this action is to take a look at the ARK Innovation exchange-traded fund (ARKK) , which gapped down sharply to start the day, but reversed sharply higher and finished with a gain of 2%
The good news is that this action partially closed the gap between the winners and laggards that has been building for months. It does look like there is some bottoming in many stocks that topped out way back in February, but now the question is whether the pressure will build on those stocks that were hitting new highs just a few days ago.
The biggest market negative recently is that speculative stock picking just has not been working very well. Stocks have been sold regardless of good news, good valuations, or good stories. Any positive move has been used as a reason to sell. We will see if this starts to shift as the corrective action rotates into other sectors that are much more technically extended.
While this looked like quite a poor day overall, it was actually positive for the stocks that have been suffering the most recently. We will see if the market builds further on this rotation in the days ahead.
Have a good evening. I'll see you tomorrow.