Rebuilding is Inevitable

A fairly pronounced downside reversal off a gap higher this morning, led by ARKK QQQ TSLA and the small and micro cap stocks in the IWM and IWC, respectively, has the look and feel of a market still in an ongoing correction with a rising risk of a washout below given how many longs seem to be cocksure a bottom is imminent. One of the consequences of the market being a one-way freight train higher, for the most part, since last March 2020 is that both newcomers with no experience of major corrections--And even some veterans who have forgotten what a real correction looks and feels like--is that opening gaps higher in corrective markets have an unusually high rate of failure. In fact, they often simply set up the next leg lower. 

As it stands now, if SPY cannot remount $380 today effectively, coinciding with its 50-day moving average, I see little reason to assume a bottom when longer-term moving averages lurk below on all the major indices. Furthermore, should bulls lose the Dow, energy sector, and banks, three main holdouts, to even garden-variety pullback of their own the selling could be more broad-based and intense than anything we have seen heretofore. 

For balance, we always are on the prowl for relative strength names during corrections. You will note U.S. Concrete, a clear potential infrastructure beneficiary, is hanging in there impressively well. I suspect the market is waiting for a better overall picture for stocks before allowing USCR to break higher. But it is definitely on my list of names resisting a correction so far, as it may be looking out towards the Stimulus Bill and Biden's first major speech in a few weeks.