Look honestly at the market

For the third day in a row, we had some brutal sell-offs in the broad market as senior indices covered up the mess. The width wasn’t so bad Monday, but certain parts of the market were butchered.

The exchange-traded ARK Innovation fund fell 4%, the IBD 50 ETF (FFTY) was hit with a loss of 4.8%, and select small caps went bidless and plunged into the abyss. The S&P 500 held up fairly well for most of the day, but sold very sharply in the last 45 minutes of trading.

I have been talking about the bipartisan nature of this market for a while, but in the last few days it has reached extreme levels. A good illustration is that on the day, 177 stocks were up 4%, but nearly 400 were up 4% or more.

The good news is that the market is undergoing a very deep correction in some places. The bad news is that quite a few people don’t see it, and that keeps the sentiment more positive than it should be. Typically, market correction sees a highly correlated sell. A lot is sold in this case, but it is simply not reflected in a conventional way.

This is one of the most unusual market moves I can remember, due to the sheer number of stocks going low or slump while the indices barely react.

The big question is: how does this eventually resolve itself? At this point I have no idea and will just have to be patient and see what happens next. A lot of “good” stocks are being sold by this rotation, but there are no signs yet that they are close to a bottom.

Have a good evening. I see you tomorrow.

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