The corrective action that has hit the market over the past eight trading days shifted on Monday, but it looks like it may require more time in order to resolve itself. The theme was rotational action which left the indices mixed. Energy and financial stocks did well while high-beta growth and some speculative names took hits.
While market pundits are looking for explanations to explain the action, it really is nothing more than just the normal ebb and flow of the market. The indices and many stocks needed to rest and reset after a good run, and that just happened to coincide with negative seasonality. We still have several weeks before that turns, which leaves the likelihood that it will be a bumpy ride for a while longer.
The bearish narrative has been focused on slowing growth due to the Delta variant, but other concerns such as inflation have been less of an issue. There is also the usual talk about stretched valuations, how the Fed's efforts will eventually lead to a crisis, and a market crash that will occur sooner or later.
The bears try hard, but they just can't generate any sustained downside momentum. There are plenty of market participants looking to buy, and they will be positioning for the positive seasonality that occurs after third-quarter earnings start to hit later in October.
Currently, this is a market undergoing some very healthy consolidation. It is exactly what is needed, and the longer it lasts, the better it will be as a setup for the next move.
My game plan is to stay patient and deploy my cash very slowly as I identify favorable individual stocks. I feel very good about positioning right now with a big cash position and a foothold in a couple of dozen names that I will likely build as they develop over the next month or so.
We have some minor strength in the early going Tuesday and a rebound in cryptos that should help the speculative move.
