The Market Is Suffering From Multiple Personality Disorder

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There are two totally different markets out there right now, and it is causing great consternation for many of its participants.

The first market is reflected in the action in the DJIA and S&P 500. This is primarily comprised of big-cap, value stocks that are favored by large funds and buy-and-hold investors. Many of these stocks have slow-and-steady growth and lower levels of volatility. A good example is Dow, Inc. (DOW) , the chemical company that is part of the DJIA.

The second market is comprised mainly of high-growth names and speculative small-caps. The best illustration of what’s going on with high-growth stocks is the ARK Innovation ETF (ARKK) . Compare that chart to that of the DJIA, and the stark difference in action is quite clear. Good examples of the sorts of stocks that are held are Skillz (SKLZ) and Beam Therapeutics (BEAM) .

In addition to the growth names, another area of the market that is quite weak are the speculative small-caps that have been favored by individual and social media traders. Biotechnology is one of the key sectors that’s been hit hard by the lack of interest. Other groups such as SPACs, electric vehicles, gambling, cannabis, and solar energy have been under consistent pressure.

Many of the small-caps that have been hit the hardest have good fundamentals and stories, but the relentless pressure has killed the charts, and, so far, they have not been able to bounce much. Cannabis stocks have come back in the past week, and there is some decent action in crypto-related names, but it is still very choppy.

The biggest problem is that closing the gap between the two groups is likely to be a very messy process. It seems most logical that big-caps will start to correct deeper, but if that occurs, it is hard to foresee that the speculative small-caps will find much upside traction. At best, the small-caps and growth names are likely to tread water while the senior indices pull back.

It is a very odd market and presents some of the most difficult trading we’ve had in years. The best course of action is to protect capital and wait for conditions to evolve.