The market is seeing its first correlated wave of selling in a while. There is no rotation today, with breadth running at around 1500 advancers to 6000 decliners. New 12-month highs have dropped from more than 1200 yesterday to around 225 today. For the first time in quite a while, my list of stocks moving up more than 10% is short enough to count at around 25.
The primary catalyst for the selling is some recently frothy action in small-caps combined with a 'sell the news' reaction to the Biden stimulus play. There is also some increased worry about higher taxes and inflation, but that is nothing new. The difference is that we now have some weak action that is looking for a good explanation.
I'm not too concerned about the action at this point. I had a few stops triggered, but I'm more inclined to be a buyer of weakness at this point rather than a more aggressive seller. I'm waiting until later in the day before I do much.
Don't forget that we have a three-day weekend coming up, and there may be some inclination for traders to lock in big gains and then reassess on Tuesday.
Many market players are anticipating an epic crash and are prone to read more into corrective action like we are having today than is justified. This could turn out to be something major, but it is too early to say.
My game plan is to tighten up some stops and look for some incremental buys later in the day. If we see the indices hitting new intraday lows this afternoon, I will be more defensive, but right now, I view this as just some routine and much needed corrective action rather than a major trend change.
I'm working on identifying which positions I want to build as support levels form. There are plenty of potentially good buys out there, but we need to let the market shake off some froth.