For the second time this week, higher interest rates and inflationary concerns triggered aggressive selling. The primary villain was a very poor 7-year bond auction, but much of the selling was caused by technical breakdowns in groups that traders have favored, like cannabis, special purpose acquisition companies, bitcoin-related names, gambling, and solar energy.
The short squeeze trade in GameStop (GME) and a few other names soaked up some liquidity and was a distraction, but the market pretty much took it in stride, unlike all the drama of three weeks ago.
The big difference between the selling Thursday and that which hit on Tuesday was that it was steady all day. There was a brief afternoon bounce attempt, and some buying that took us off the lows at the close but breadth was horrendous with just 840 gainers to over 6,900 decliners. It doesn't get much worse than that.
This highly correlated selling is how real corrections take place. There was no rotation, however, to soften the blows and the "reopen the economy" plays and financials all reversed after a positive open.
The big question now is how quickly do we find support? This correction is taking place at a time when economic optimism is building. The higher rates are mainly a function of more stimulus and stronger anticipated growth. Stocks may be expensive in places, but these are not the conditions that typically lead to a prolonged bear market. Presently this is just some routine corrective action, although losses never feel very routine. The uptrend is under pressure, but this is not a full-blown correction yet.
I'm not going to try to guess how much deeper this correction may go, but I'm already seeing many promising names that are looking washed out. Some of the SPACs, in particular, have limited risk as they approach their redemption levels.
Work on those shopping lists and enjoy the evening. I'll see you tomorrow.
