The dominant market theme of 2021 has been rotation. We have had rotation from “stay at home” stocks into “reopen the economy” names, from “growth” into “value,” and from small-caps and into big-caps.
Recently, however, the rotation has created two-tiered market action as the S&P 500 hits a new all-time highs, but underlying breadth and volume have been poor, and many former hot stocks have fallen into bear markets.
We are now in a situation where the stocks that are driving the indices higher are overbought and in need of a correction while many secondary stocks are washed out and struggling to find good support.
It has been a very difficult market environment for many traders as they struggle to find what is working, but at the same time are nervous about chasing momentum in stocks that could see some corrective action at any time.
Sooner or later, some of these inconsistencies in this market will reverse, and the rotational action will shift again. Trying to anticipate how and when that will happen is impossible. All we can do is watch for potential catalysts and see how things react.
Wednesday morning, earnings season starts with some big banks reporting as well as Bed, Bath & Beyond (BBBY) . The reports are just starting to roll in, but so far, JPMorgan Chase (JPM) and BBBY are seeing negative reactions.
There is also big news in the crypto sector today as Coinbase (COIN) does a direct listing with a reference price of $250. This will be one of the hottest new listings of the year and COIN already has a $600 price target from MoffettNathanson.
Bitcoin and other cryptocurrencies have been running hard into the excitement created by this offering. Some traders are speculating on a “sell the news” reaction, but we shall see how it plays out.
Much of the market is still struggling with very poor price action. Outside of the major indices, there has been a lack of energy, but things did perk up a bit late on Tuesday. Traders are frustrated and will likely be quick to jump in on some better momentum in favored sectors.
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