After the extremely chaotic rotational action on Monday, the action is tentative and uncertain Tuesday morning.
Dip buyers are shell-shocked and not showing signs of confidence. The bounce action is very weak as the Nasdaq, growth stocks, and small-caps are failing to hold minor gainers. Recent favored names such as Roblox (RBLX) and Nvidia (NVDA) were briefly positive before turning back down. Ark Innovation ETF (ARKK) and Innovator IBD 50 ETF (FFTY) are also lower again.
This is a market that is dominated by sector flows right now. If a stock is not in a favored group, it will see selling pressure regardless of its fundamentals or individual merits. The easiest mistake to make in this sort of market is to average down into positions too quickly because of good fundamentals.
My main objective in this sort of action is to make sure I have sufficient cash on hand to buy favored names when the price action improves. I'll take some stops and reduce some positions into weakness, but some of the mispricings are so severe that it is difficult to fully reduce.
One buy I'm making Tuesday morning is AdvisorShares Pure US Cannabis ETF (MSOS) . The cannabis sector fell sharply after news that the Republicans were introducing a pot bill. I believe the end-of-year tax selling is part of the reason for the pressure. I am looking for another move in pot stocks on some legislative activity before the end of the year.
This continues to be an extremely difficult market, and the main focus needs to be on capital preservation.
