Is The Stock Market Readying For A Sell-Off?

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(Edited)

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Is The Stock Market Ready To Fall?

The market closed down today at its lows for the session across all indices. It would have been even lower had the sectors of energy and financials not propped the market up.

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Perhaps what was most alarming about today's session, however, was the rather steep drop across the momentum plays. For example, high-flying themes like SPACs, China stocks, Electric Vehicle plays, Crypto-related companies, and etc. all faced steep declines today that was outsized relative to the market overall. Even Diamond-handed Gamestop (GME) proved to be anything but as it tumbled a whopping 34%.

Perhaps no greater indication of this momentum-based sell-off comes in the form of a steep decline in the Cathie Woods' ARK Innovation ETF (ARKK), a fund that has found a meaningful amount of success over the past year.

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Perhaps It's Just Some Reversion To The Mean

Now part of the sell-off appears to be part of the cycling out of the fast-paced growth companies and back into the cyclical value plays. Over the past year, the market has somewhat followed the K-recovery of the economy at large in which some sectors prospered while others failed to do so. This was best exemplified by the the strength found in tech and growth names compared to valued-oriented names.

As seen in the chart below, the SPYV (value) and SPYG (growth) chart shows some consolidation in recent weeks to the bifurcation that the two ETFs were undergoing for much of the past year. SPYV is indicated by the blue line while SPYG is represented by the purple line.

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We Are At An Important Inflection Point

The one thought I'll leave with is that we do appear to be an an important juncture. Based on anchored VWAPs of recent key levels of interest, the market is currently priced near the point where most people have averaged in at from a recent high. A look at the chart below suggests that the market would need to stay relatively above the green line in order to maintain a bullish stance going forward. Should this support line fail, the red line is very much within the realm of possibility of where the market could soon fall to.

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Posted Using LeoFinance Beta



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