You wouldn't know it from looking at the indices or listening to traditional financial media but the market has been undergoing a rotational correction for months and it is picking up some traction today.
The easiest way to see what is going on is to compare the charts of biotechnology (XBI) , cannabis (MJ) , and the ARK Innovation ETF (ARKK) with the S&P 500 (SPY) . At the same time, SPY is hitting new all-time highs and looks extended. ARKK is down about 24% from its high, the cannabis ETF has fallen 38%, and biotechnology is down about 28% in two months which qualifies as technical bear markets for all three sectors.
Over the past year, we have also seen groups like FATMAAN and financials lag at times while other sectors outperformed. The corrections that have taken place have been largely hidden because the indices continue to find a few big-cap names that will make up the shortfall in other names.
This sort of rotational correction presents both problems and opportunities.
The primary problem is that it is extremely difficult to measure when a group like biotechnology or cannabis bottoms. If the indices start to correct, money doesn't typically rotate into lagging sectors very soon. Even if they are good values, the stocks in a bear market will have a hard time finding sustained buying when the broad market is under pressure.
The opportunity is quite clear. Many of the stocks in the sectors that are in bear markets are very good values and will recover well when eventually sentiment shifts. It will require some patience, and there is no way to know when a bottom will form, but it is very likely that some of the stocks that look that worst today will look like great bargains a few months from now.
It is a rolling correction, and this market is not nearly as strong as it looks.