One of the hallmarks of bear markets is that they tend to close weak. There is a belief on Wall Street that "dumb money" acts at the open and "smart money" makes its moves at the close. I'm not sure how true that it is in the age of computer algorithms, but weak market closes do have an impact on market sentiment.
We had extremely weak closes on Tuesday, Wednesday and Thursday. The action looked favorable early in the day, but then late selling hit hard and the indices closed near the lows of the day with sizable losses. For three days in a row now, the number of new 12-month lows has been close to 1,000, which is the worst performance since the pandemic hit in 2020.
The good news is that this terrible action finally has pushed the business media to recognize the problems this market faces. As many traders know, much of the market topped in February 2021 and has been struggling and in a downtrend since then.
I've constantly been writing about the two-tiered nature of the action that traditional Wall Street and the business media have been ignoring for a very long time. Finally, the indices are starting to reflect what has been going on in the overall market, and it is being noticed.
The problem now is that the media believe this correction just started. We are now starting to see predictions about how bad it can get. The poor action in stocks such as Netflix (NFLX) and Peloton Interactive (PTON) is being extrapolated to other stocks, but there are already around 2,500 stocks that have been cut in half.
Traders continue to face the same question they have been grappling with for many months - namely, can the stocks that are already deep in bear markets find support and start to perform better while the indexes continue to correct?
That is the thrust of the issue that traders face right now. I'm watching groups such as biotechnology, de-SPACs, growth stocks and small-caps to see how they act as the indexes struggle with emerging downtrends. I don't know how this will develop, so all I can do is watch, wait and be ready to act as conditions change.
As I keep saying, there are some exceptional opportunities developing in stocks that have already been cut in half, but we need to have good timing to benefit from them
We have a mild start to the day, but traders are going to be worried about another weak finish after what has happened this week.
