The stock market continues to irritate investors, as high price-to-earnings and high-beta names offer no support to beleaguered investors.
“Some of the best and most experienced traders I know have recently commented that the current market environment is one of the most difficult that they have faced,” said TheStreet’s James “Rev Shark” Deporre in Real Money. “Casual market observers are probably puzzled by that remark as the correction in the indexes has been relatively mild compared to prior bear markets. Most of the business media isn't even calling the current action a bear market since the S&P 500 has not dropped 20% at this point.”
This disconnection between various areas of the market is the heart of what is causing so much consternation for experienced traders. “Aggressive traders tend to favor stocks with greater volatility as they will produce the biggest moves, but these stocks have been pounded recently,” Deporre noted.
What exactly is going on with the stock market? For starters, high P/E and high-beta names have had no support regardless of fundamentals.
“Small-caps, growth shares, biotechnology, SPAC-related names, and a host of other stocks are deep in bear markets and are trading near lows, but they are unable to bounce as the indexes are still under pressure and in an early stage of correction,” Rev Shark said. “There are still no signs of a bottom, although the pullbacks are at extreme levels.”
Although this is an extremely difficult market right now, it holds the potential for some exceptional opportunities.
“I’ve never been more optimistic about the long-term fundamentals of a number of stocks that I favor,” Deporre said. He identified a couple of names in biotech that he expects to be "stellar performers once the pressure on the sector lifts and the market starts to favor individual stock-picking again.”
At this point, a trader’s job is to navigate through this difficult market and be ready to move fast and aggressively when market conditions shift.
“It may feel a bit hopeless right now, but the one great certainty of the market is cycles, and this cycle will eventually shift,” Rev Shark said.