The corrective action that began Thursday continued Tuesday with the big-cap technology stocks and the Nasdaq 100/Invesco (QQQ) , leading to the downside. These stocks had become widely extended and now are coming back down to earth. Tesla (TSLA) , for example, suffered a drop of 21%, which is the biggest single one-day drop in its history, but the stock is only back to where it was on Aug. 15.
Breadth was atrocious with around 1,700 gainers to 5,700 decliners. There were only 44 stocks hitting new highs, while 62 made new 12-month lows.
Although it was a sea of red, there were a couple of bright spots. The intensity of the selling was not that broad. Typically technicians are looking for downside volume of 90% or more as an indication of a washout, but that did not occur. There was also some decent stock picking in the SPAC sector, and I noticed some bottoming action in smaller biotechnology that has been struggling for a few weeks now.
Market players that were looking for rotation out of growth and into value were disappointed. Banks in the Select Sector Financial fund (XLF) performed poorly and there were no traditional "defensive" groups that did well. Precious metals did bounce, but the group is just holding support right now.
The good news is that the market badly needed some corrective action and is proceeding in a fairly orderly manner. Many stocks are already forming better technical patterns and I expect to see more interest in selective stock picking as it develops.
This is ugly action right now, but it is necessary and it isn't quite as broad as we saw back in February.
Have a good evening. I'll see you tomorrow.
