Traders Could Use a Break From Historic Levels of Market Inconsistency

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Over the past week, the market has seen some of the most severe rotational action in years. Records are being set for the number of stocks hitting new 12-month lows while the indexes trade near all-time highs. On Tuesday more than 700 issues hit the lowest level in a year while the S&P 500 ended the day with a gain and within a few percentage points of new highs.

The severe selling that has been taking place in a wide swath of the market isn’t reflected in any of the indexes very well. Even the Russell 2000 ETF (IWM) has understated it due to offsetting strength in financials and energy that are a large component of the indexes.

The selling in growth stocks can be easily seen in the ARK Innovation ETF (ARKK) , which holds about 100 high price-to-earnings (P/E) growth names. Since Friday, Nov. 12, it has dropped more than 10% and is deep into the bear market territory after hitting highs in February.

Other areas of the market such as biotechnology, cannabis and many small caps have similar technical patterns. Less than 45% of stocks are over their 200-day simple moving averages and are far below their 12-month highs. Despite the pervasive weakness, the business media continue to celebrate the indexes that are being held up by a small group of big-caps and some strength in groups such as banking, oil and industrials.

Tuesday afternoon, the pressure lifted for a few hours and allowed the worst stocks to finally rise. Biotechnology, as represented by the SPDR S&P Biotech ETF (XBI) , formed a hammer pattern, and there was some hope that the day before Thanksgiving would see some traditional strength.

The S&P 500 is positive on the day before Thanksgiving about 70% of the time, but this recent action has hurt sentiment and traders are likely to lack confidence. They will want to see some strength before becoming involved.

We have a negative start on the way as retail stocks are hit hard and cryptocurrencies are weak. We will see if traders become interested or head out early for the Thanksgiving holiday.