“Because something is happening here but you don’t know what it is Do you, Mr. Jones?”

And, Mr. Scombulis?

Heck, no, but I will tell you this: The price action in most stocks has been notably bearish in the past few weeks. Moreover, quite a few green instruments, including crypto, open with gaps up and red closes —the morning gains faded throughout the day, and the indexes closed near their lows of the daily range. Mid-week, $SPY and $QQQ slashed through their 50MA very easily; then bounced back and found resistance right under their 50MA. The wonders of behavioral finance writ large and most predictable before the three-day weekend.

In the meantime, correlations among most stocks have increased and they started to move together – something we typically see during corrections. But the market reaction to earnings has completely changed —only a few weeks ago, stocks were rallying on missed estimates and lowered guidance. So what changed?

Lately, the market has been selling both positive and negative earnings surprises.

Sentiment has changed since Powell’s remarks at Jackson Hole. Now, the market is worried that the Fed will keep tightening until inflation or job numbers fall significantly, whichever comes first. As a result, most stocks are under pressure. The S&P 500 has declined 3% or more 7 times this year. In the last 70 years, the only ones with more 3+% down days than we’ve already seen in 2022? And, we have a hundred trading days to go.

Nothing is safe. Even energy and metals that held relatively well until last week, are starting to sweat a bit. The following graphic illustrates the growth of the dollar traveling high above the Ichimoku cloud on a daily time frame. And note the carnage in consumer sectors.

Group Themes: Exploration & Production, Marine Transportation, Oil Equipment & Services, Uranium, Biotech

Some compelling charts — all strong RS and in Stage 2

No surprises to the Marketsmith Top 40 Industry Groups. The Renewable Energy group (Solar etc) is the other group of interest and an apple in my eye that has a spot in the overall group RS rankings.

Earlier in the week Biotechnology dominated my scans with multiple stocks from the group in position for potential continuation breakout attempts in early Stage 2 or breaking from a base structure ala Darvas, Livermore, Oneil, etc, after consolidating and pulling back for the last month. In the table, biotech holds the three spot, but it was ranked 88 three months again.

Biotechnology exhibits continuation type moves, with some already in early Stage 2 So using the Forest to the Trees approach, we need to drill down into the companies within the group and start to do peer analysis to find the potential leading stock that has the best technical characteristics. I produced two lists: one table displays profitable biotechs or those with low-debt loads and the other displays Stage 2 biotechs with robust Relative Strength.