The corrective action that has been plaguing many stocks and sectors for months is finally starting to spread into the indexes and big-caps. The primary catalyst is rising bond yields and fear of inflation. The FATMAAN names and many of the other big-cap names that stayed strong through the end of the year are no longer the safe haven that they enjoyed for so long.
The technical action on Tuesday was severe enough that Investors Business Daily finally cut its outlook to 'market in correction.' The move was driven by the Nasdaq closing below its 200-day simple moving average for the first time since April 21, 2020, in the early days of the COVID pandemic.
For those that have been trading other areas of the market such as biotechnology, high P/E growth names, and small-caps, the move to 'correction' appears to be quite late, but it is a reflection of the two-tiered nature of the market where the indiexes failed to reflect what was going on in the vast majority of stocks.
Unlike the Nasdaq and the other major indices, there were over 1000 stocks hitting new 12-month lows on Tuesday, and over 5000 stocks are within 10% of their 12-month lows.
The challenge of this market continues to be the impact on the indexes on the stocks that have already been hit hard. Fundamentals were not offering any support, and oversold technical conditions don't matter. A good illustration is biotechnology which was down sharply again on Tuesday even though the sector is grossly oversold.
The good news is that this bear market action is no longer hiding behind the indexes. The indexes are still elevated, but the gap is starting to close. More importantly, sentiment has shifted, and now we are finally starting to see the sorts of negativity that can help to produce a market low.
We have a minor bounce in the early going, but trust levels are very low. There are a few more earnings reports hitting, and some housing data is coming up, but all eyes will be on bond yields once again.
